Global Sustainable Fund Flows: Q1 2025 in Review

The global sustainable fund universe encompasses open-end funds and exchange-traded funds that, through their prospectus or other regulatory filings, claim to focus on sustainability, impact, or environmental, social, and governance factors. The global universe is divided into three segments by domicile: Europe, the United States, and the rest of the world.

Global sustainable funds registered record-high redemptions of USD 8.6 billion in the first quarter of 2025, driven by the United States and, to a lesser extent, Europe. These redemptions follow restated inflows of USD 18.1 billion in the fourth quarter of 2024.

This article is adapted from a recent report published by Morningstar Sustainalytics and details regional flows, assets, and launches for the first quarter of 2025. Download the full Global Sustainable Fund Flows report for free.

The United States suffered its 10th consecutive quarter of withdrawals, reaching USD 6.1 billion in the last three months. Asia ex-Japan also bled money, registering redemptions of USD 918 million, following a restated inflows of USD 2.8 billion in the fourth quarter of 2024. Meanwhile, outflows from Japan extended to the new year but improved to under USD 900 million from USD 1.1 billion in the previous quarter.

By contrast, investors in Canada and Australia/New Zealand poured net new money into sustainable funds. Each market garnered inflows of around USD 300 million.

Calculated as net flows relative to total assets at the start of a period, the organic growth rate of the global sustainable fund universe slid to negative 0.27% in the first quarter from the restated 0.54% three months earlier. By comparison, the broader global fund universe had a positive organic growth rate of 0.90% in the first quarter. Flows into that universe were USD 530 billion, a decline from USD 847 billion in the previous quarter.

As of March 2025, global sustainable fund assets retreated marginally by 0.7% to USD 3.16 trillion from USD 3.18 billion three months earlier. For context, the Morningstar Global Market Index lost 1.4% over the first quarter, while the Morningstar Core Bond Index posted a 2.5% gain. Europe takes up 84% of global sustainable fund assets, followed by the United States at 10%.

In the first quarter of 2025, European sustainable funds recorded net outflows of USD 1.2 billion, their first quarterly outflows since Morningstar began tracking data in 2018. Total redemptions totaled an estimated USD 1.2 billion, dragged by outflows from active strategies, which bled almost USD 5.0 billion. Passive funds garnered USD 3.7 billion, an all-time low and a 72% decline compared with the restated USD 13.3 billion three months earlier.

Until now, the category had consistently posted positive flows, including in the fourth quarter of 2023, even as conventional European funds faced redemptions. This reversal contrasts sharply with the strong Q1 2025 inflows into conventional funds and reflects a shift in sentiment driven by multiple factors.

Chief among them is a deteriorating geopolitical environment shaped partly by Donald Trump’s return to the U.S. presidency, which has deprioritized climate and sustainability goals in Europe. Trump’s anti-climate agenda and actions, such as an executive order targeting diversity, equity, and inclusion, have introduced new legal uncertainties. In response, U.S.-based asset managers have scaled back their global ESG positioning, prompting caution among European investors.

This perceived rollback in international alignment on sustainability, alongside evolving regulatory requirements in Europe and ongoing performance concerns—especially in clean energy—has contributed to weakening demand for ESG products.

Amid the economic and political headwinds, sustainable product development reached a record low in the first quarter of 2025, with only 54 new sustainable funds introduced worldwide, compared with the revised 105 in the previous quarter. These numbers, however, will likely be revised upward in the next report as additional launches are identified.

Canada's sustainable fund universe saw a notable uptick, with inflows of USD 285 million, a stark contrast to the previous quarter's redemptions of USD 52 million. Similarly, the Australasian (Australia and New Zealand) sustainable fund universe also experienced positive net flows, attracting around USD 305 million, though slightly lower than the USD 396 million in net inflows in the prior quarter. The Japanese sustainable funds' landscape continued to bleed money, seeing its 11th consecutive quarter of outflows, with net withdrawals from both active and passive funds amounting to a total of USD 900 million.

There is a lot to unpack here. To get into the thick of it, download the free Global Sustainable Fund Flows report published by Morningstar Sustainalytics. It includes in-depth commentary on each domicile as well as the top global asset managers and their performance.

The data evaluated in the report was generated in Morningstar Direct, a comprehensive application that helps asset and wealth managers build their assets and manage their portfolios. Start a free trial of Morningstar Direct today.