A handful of firms and funds increasingly dominate Canada’s sustainable fund market. That was evident in the segment’s uneven net inflow recovery in 2025, when it rebounded from a year of net outflows, taking in C$1.1 billion. However, nearly half of all sustainable funds still saw money leave, and asset managers closed, merged, and rebranded struggling strategies.
Flows Returned, but the Recovery Was Uneven
Rising markets and returning flows helped push total assets in Canadian sustainable open-end funds and exchange-traded funds (excluding funds of funds) to an all-time high of C$67 billion. While 2025’s inflows marked a reversal from 2024’s C$2.5 billion in net outflows, the magnitude of the improvement was modest. Net inflows in 2025 were roughly 90% below the category’s 2021 high-water mark, reflecting how much demand has cooled since the boom years for environmental, social, and governance funds.
Canadian Sustainable Fund Net Flows by Year
Not all funds were part of the recovery. 47% of sustainable funds experienced net outflows, with net inflows concentrated in a handful of strategies. The 10 funds with the largest inflows gathered C$4 billion, led by the Desjardins Sustainable International Equity Fund with an estimated C$691 million. Funds outside the top 10 saw net outflows of C$2.9 billion. Just 10 out of more than 300 strategies accounted for all the category’s net inflows.
Managers Streamlined Their Sustainable Lineups
Canada’s sustainable fund coverage expanded rapidly between 2019 and 2024, with the number of products more than tripling as firms raced to meet investor demand. As that demand has moderated, managers have shifted from expansion to rationalization. They’ve closed or merged underperforming funds, slowed new launches, and focused resources on strategies attracting new dollars.
More funds (23) exited the Canadian sustainable fund universe in 2025 than in any year since Morningstar began tracking this data in 2019. Most reflected liquidations and mergers, but three were removed after the funds deemphasized ESG criteria in their investment processes. New fund launches slowed sharply as well, with just two entering the universe in 2025, compared with 18 in 2024.
Number of Funds Added to and Removed from the Canadian Sustainable Fund Universe by Year
Invesco illustrates the divergence well. The firm closed eight ESG ETFs in 2025, each with less than C$5 million in assets at the start of the year. At the same time, its largest ESG ETF, the Invesco S&P 500 ESG Index ETF, started 2025 with C$482 million in assets, and it gathered an additional C$60 million in net inflows over the year.
Legislative and Regulatory Scrutiny Has Raised the Bar for ESG Claims
Regulatory and legislative pressure is also prompting managers to think more carefully before applying ESG labels to their funds. In 2024, Canada amended the Competition Act to bring environmental claims within its misleading advertising and deceptive marketing framework. Under those provisions, businesses must be able to back up claims, such as net-zero alignment or sustainability labelling, with documented, verifiable evidence.
While the federal government signaled in 2025 that it intends to remove some of the more contentious elements of the amendments, the core obligation to substantiate environmental claims remains in place.
Securities regulators have also taken notice. In fall 2025, the Ontario Securities Commission initiated proceedings alleging false or misleading statements about how ESG factors were applied in certain funds. That case gives managers added reason to scrutinize the ESG claims they make in fund documents and marketing materials.
More from the Sustainable Funds Landscape Report
For a detailed view of which asset classes, managers, and funds gained ground in 2025, see Morningstar’s Canadian Sustainable Funds Landscape report. It also examines investment performance and sustainability metrics relative to conventional peers, and it ranks the largest sustainable funds in Canada.
