Global Sustainable Fund Flows: Investor Appetite Remains Muted

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. 

Global sustainable funds registered outflows of about USD 55 billion in the third quarter of 2025. While the vast majority of the outflows stemmed from redemptions in a range of BlackRock funds, global sustainable funds still recorded estimated outflows of USD 7.2 billion in the third quarter.

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

Meanwhile, the United States continued to experience net withdrawals for the 12th consecutive quarter, though the total was slightly lower at USD 5.1 billion in the third quarter, compared with the restated USD 5.8 billion in the previous quarter.

Flows into Asia ex-Japan rose to USD 902 million, up from a restated USD 811 million in the previous quarter, signaling continued investor interest in the region. Japan, by contrast, saw outflows of USD 840 million, reflecting a sustained retreat from sustainable strategies as the country registered its 13th consecutive quarter of outflows.

Canadian investors maintained their momentum, channeling net new money into sustainable funds, with inflows surging to approximately USD 700 million — a sharp increase from the restated USD 146 million in the prior quarter. Australia and New Zealand also showed signs of recovery, reversing the previous quarter’s outflows with combined net inflows of USD 268 million.

As of September 2025, global sustainable fund assets edged up by about 4% to over USD 3.7 trillion, compared with a restated USD 3.6 trillion three months earlier. The growth was primarily driven by appreciation in both equity and bond markets. For broader context, the Morningstar Global Market Index advanced 7.6% over the third quarter and the Morningstar Global Corporate Bond Index inched up by 1.9%.

Europe takes up 85% of global sustainable fund assets, followed by the United States with 10%, and the rest of the world making up the remainder. Sustainable funds represent approximately 19% of the overall European open-end funds and ETF universe, compared to just 1% in the US.

European-domiciled sustainable funds saw record outflows of USD 51 billion in the third quarter of 2025, compared with restated inflows of USD 11.3 billion in the second quarter. The bulk of these outflows can be explained by the redemptions from four BlackRock authorized contractual schemes' funds domiciled in the UK, following the decision by a client pension fund to transfer assets from the funds to BlackRock custom ESG mandates. We do not collect data on separate accounts.

Excluding these redemptions, the European sustainable fund universe still experienced outflows over the quarter—though significantly smaller—amounting to USD 3.1 billion.

Excluding the four BlackRock funds mentioned earlier, the third quarter outflows of USD 3.1 billion  were primarily driven by withdrawals from passive strategies, while active sustainable funds attracted USD 6.0 billion in inflows.

Product development activity in the sustainable funds space was subdued after experiencing a modest uptick in the second quarter of 2025, with 26 new sustainable funds launched globally. This was a significant decline from a revised 92 in the previous quarter. Europe, once again, was the main driver, accounting for 20 new launches.

Although climate change is one of the top systemic risks for investment portfolios, more investors are seeking to capitalize on opportunities and invest in companies that develop innovative solutions to mitigate climate change or adapt to it.

In fact, our latest report on investing in times of climate change reveals climate-related funds now account for almost 20% of the global ESG and sustainable funds market, representing a wide range of strategies—from decarbonizing portfolios to investing in climate-related solutions.

After a busy first half of the year, during which asset managers rushed to implement the EU's ESMA fund naming guidelines ahead of the May 21 deadline, fund renaming activity has since slowed. In the third quarter of 2025, we identified 118 renamed funds, including 64 that dropped their ESG-related terms altogether, 43 that replaced an ESG-related term for another, and 11 that added ESG-related terms.

There'ss 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.