Global Sustainable Fund Flows: Why Sustainable Investing’s Worst Outflows Since 2018 Aren’t the Full Story

The 2025 global sustainable fund flows universe is one of historic reversals. For the first time since Morningstar began tracking global sustainable fund flows in 2018, the full year ended in net redemptions — USD 84 billion in total outflows, compared to USD 38 billion in inflows just one year prior.

This article is adapted from the Q4 and Full-Year 2025 Global Sustainable Fund Flows report by Morningstar Sustainalytics, which details regional flows, assets, and launches for the period. Download the full report for free.

Despite the difficult flow environment, global sustainable fund assets reached USD 3.9 trillion at the end of Q4 2025, a  4% increase over the prior quarter, driven primarily by stock market appreciation. 

The Morningstar Global Market Index advanced 3.3% over the fourth quarter, while the Morningstar Global Corporate Bond Index edged up 0.17%.

Europe dominates the landscape, accounting for nearly 86% of global sustainable fund assets, with the US holding 9% and the rest of the world making up the remainder. Sustainable open-end funds and ETFs represent approximately 20% of the overall European fund universe, compared to just 1% in the US.

Looking further back, global sustainable fund assets have grown more than sixfold since the end of 2018, rising from roughly USD 600 billion to USD 3.9 trillion. 

That long-term trajectory reflects the powerful role of supportive regulation, particularly in Europe, improved ESG data, product innovation, and growing investor awareness of sustainability risks.

2025 was undeniably a difficult year for sustainable investing. Several forces converged to dampen investor appetite for sustainable open-end funds and ETFs.

Anti-ESG policy headwinds. The incoming US administration adopted an explicit anti-ESG stance and shifted toward deregulation, leading many US asset managers to scale back ESG commitments. The effects spilled into Europe, where firms grew more cautious amid uncertainty around the EU Omnibus Package and the review of SFDR. 

Performance challenges. 2025 was the second-worst year for ESG index performance since 2018. Just 26% of Morningstar sustainability indexes outperformed their market-cap counterparts, down from 45% in 2024. Mega-cap concentration, strong gains in carbon-intensive sectors, and limited defense exposure weighed on results. 

Structural capital shifts. Much of the Q3 and Q4 outflows came from large UK institutions — including clients of BlackRock, Scottish Widows, and Northern Trust — moving from pooled ESG funds into bespoke segregated mandates. Because Morningstar does not track segregated mandates, these reallocations appear as outflows even though assets largely remained in ESG strategies. 

Active vs. passive. Both segments saw redemptions. Active sustainable funds recorded a record USD 49 billion in outflows, while passive ESG funds posted their first annual withdrawals, nearly USD 35 billion. Meanwhile, global open-end funds and ETFs drew almost USD 1.7 trillion in inflows. 

Performance was a major headwind for the asset class last year. Strategies with high relative active share struggled as mega-cap technology companies, often underweighted in ESG portfolios, drove significant index returns. Carbon-intensive sectors and defense stocks also outperformed, areas where many sustainable funds have limited or no exposure.

One clear bright spot: renewable energy stocks staged a significant recovery. The Morningstar Global Renewable Energy Index posted an annual gain of 24.8% in 2025, outpacing both the Morningstar Global TME Index (17.4% return) and the Morningstar Global Energy Index (13.8%). 

This rebound came after four years of poor returns driven by elevated interest rates, materials inflation, and supply chain disruptions.

The best-performing renewable energy fund in Europe was LSF Solar & Sustainable Energy, with a gain of 73%, followed by Fineco AM MarketVector Global Clean Energy Transition Sustainable ETF at 72%. BGF Sustainable Energy, the largest European-domiciled renewable energy fund with USD 4.1 billion in assets, rose more than 33%.

Despite current headwinds, investor interest in sustainable investing remains resilient at the individual level. A Morgan Stanley Sustainability Institute survey found 88% of global individual investors are interested in sustainable investing, with younger generations showing the strongest engagement.

European-domiciled sustainable funds saw USD 20 billion in net redemptions in Q4, after a record USD 49.6 billion in Q3. While the pace slowed, 2025 remained difficult: the category posted its first annual outflows since 2018, with USD 62 billion in redemptions, reversing USD 54 billion of inflows in 2024.

Q4 outflows came entirely from active funds; passive strategies drew USD 685 million. The largest single-fund redemption was Scottish Widows’ ESG-Tilted Sterling Corporate Bond Fund, which lost more than USD 8.5 billion as assets shifted to an ESG-tilted segregated mandate.

On the positive side, Amundi led Q4 inflows among European managers with USD 9 billion, followed by Natixis. BlackRock remained the region’s largest manager, with USD 449 billion in assets.

US investors pulled money from sustainable funds for a 13th straight quarter, with USD 4.6 billion in Q4 outflows. Full-year redemptions hit a record USD 21 billion, marking the third consecutive year of net withdrawals.

Active funds drove the decline, posting their largest quarterly outflow since 2018 at USD 7.1 billion. Passive funds bucked the trend, attracting USD 2.5 billion — suggesting investors are retaining low-cost ESG exposure while exiting active strategies.

By asset class, fixed income was the only bright spot, drawing USD 1 billion. Equity and allocation funds lost USD 5.5 billion and USD 120 million, respectively.

Parnassus Core Equity Fund accounted for more than half of Q4 outflows, shedding USD 2.5 billion. Even so, it remains the largest US sustainable fund at USD 26 billion in assets, despite USD 6.2 billion in full-year redemptions.

Despite the sustained outflows, total US sustainable fund assets reached a record USD 368 billion at year-end, surpassing the 2021 peak, lifted by market gains.

Australia and New Zealand stood out in 2025, posting inflows in both Q3 and Q4 for roughly USD 730 million in annual net new money. Passive strategies led, drawing more than USD 660 million in Q4. Year-end sustainable fund assets reached nearly USD 38 billion.

Canada softened in Q4, with USD 98 million in outflows after three quarters of gains. Fixed income was the only asset class to attract net inflows.

Japan marked its 14th straight quarter of redemptions, with Q4 outflows of USD 1.5 billion, nearly double Q3. No new sustainable funds were launched in the final quarter of 2025.

Asia ex-Japan recorded USD 1.4 billion in Q4 outflows, driven by USD 1.6 billion in withdrawals from South Korea. Thailand bucked the trend, attracting USD 452 million, supported by ThaiESG sovereign bond funds.

Product development stayed muted in Q4 2025, with 40 new sustainable funds launched globally, down from 50 in Q3. Europe, New Zealand, and China led activity. The US saw just one launch — Pictet Cleaner Planet ETF — bringing the full-year total to nine, the lowest on record.

The slowdown reflects mounting greenwashing scrutiny, regulatory uncertainty, and asset managers’ focus on complying with ESMA’s fund-naming guidelines in Europe rather than rolling out new products.

BlackRock remains the world's largest manager of sustainable funds globally, with approximately USD 453 billion in ESG-focused open-end fund and ETF assets at end-2025. Amundi ranks second at USD 216 billion and UBS third at USD 208 billion.

Despite being one of the largest flow detractors in Q4, driven by the same UK institutional reallocation dynamics that inflated Q3 outflows, BlackRock's lead in total sustainable fund assets is substantial.

There's 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.