The global sustainable fund universe rebounded in the second quarter of 2025, registering net inflows of $4.9 billion. This marked a sharp reversal from the record-high restated redemptions of $11.8 billion in the first quarter. The universe comprises open-end and exchange-traded funds focused on sustainability, impact, or environmental, social, and governance factors.
European investors drove the recovery, pouring $8.6 billion of net new money into ESG funds over the past three months, after redeeming $7.3 billion in the prior quarter.
Despite a complex geopolitical environment that has contributed to a deprioritization of sustainability issues and to attention shifting toward economic growth, competitiveness, and defense, the picture for ESG funds improved in Europe.
Quarterly Global Sustainable Fund Flows (USD Billion)
Uncertainty for European investors around the impact of antigreenwashing measures began to ease in the second quarter as the European Securities and Markets Authority’s fund naming guidelines approached their implementation deadline.
Moreover, European sustainable strategies kept pace with the broader equity and bond markets in terms of index performance. In the second quarter, the Morningstar Global Markets Sustainability and Morningstar Global Corporate Bond Sustainability indexes rose by 12.6% and 4.5%, respectively. These figures compare with the respective gains of 11.5% and 4.3% for the broader Morningstar Global Markets Index and Morningstar Global Corporate Bond Index.
Additionally, clean energy stocks outperformed traditional energy sectors. The Morningstar Global Markets Renewable Energy Index posted a strong gain of 13.6% in the second quarter, while the Morningstar Global Energy Index dropped by 2.6%.
US Sustainable Funds Lose Investors in Q2
Meanwhile, US-domiciled sustainable funds continued to bleed money for the 11th consecutive quarter, although the loss was smaller than in the previous quarter, with withdrawals of $5.7 billion in the second quarter of 2025, compared with the $6.5 billion of outflows in the first quarter.
The continued redemptions can be partly explained by the anti-ESG backlash, which has intensified under President Donald Trump’s administration. Since January, the administration has taken several actions that aim to eliminate or weaken climate change-related and ESG initiatives. In this environment, many US asset managers have scaled back their ESG commitments and adopted a more cautious approach to promoting their sustainability credentials and sustainable investment products.
Global Assets Edge Higher
As of June 2025, global sustainable fund assets increased by almost 10% to $3.5 trillion from the restated $3.2 trillion three months earlier. Asset growth was supported by stock and bond market appreciation.
Quarterly Global Sustainable Fund Assets (USD Billion)
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 fund and ETF universe, compared with just 1% in the US.
Renaming Activity in Europe Reaches a Record High
In the second quarter, asset managers scrambled to meet the May deadline for renaming funds under ESMA’s antigreenwashing rule, leading to a record number of name changes. Close to 600 funds were renamed over the past three months, including 383 that dropped their ESG-related terms altogether, 186 that replaced an ESG-related term for another, and 26 that added ESG-related terms.
European Sustainable Fund Name Changes
In total, we estimate that at least 1,346 funds, or 24% of our European fund universe, representing about $1 trillion in assets, have been renamed over the past 18 months.
Notably, the majority of funds removed the acronym ESG or the term “sustainable” from their names. However, many opted to replace these with “transition” or alternative terms that still signal differentiation and, in practice, continued consideration of ESG factors. These terms include: screened, select, committed, advanced, and tilt. The vast majority of these terms have been added to passive fund names, mostly to signal ESG-based exclusions, which continue to appeal to certain investors.
Read the full report: Global Sustainable Fund Flows: Q2 2025 in Review
