Europe is by far the sustainability funds’ leader
Global sustainable fund assets surpassed $3.5tn in the second quarter of 2025, with 85 per cent of the assets based in Europe, displays data from Morningstar Sustainalytics.
The 10 per cent growth in global environmental, social and governance fund assets in recent months was largely driven by stock market appreciation.
Sustainable funds are undergoing a period of significant transformation, as political backlash in the US and shifting policy priorities — including a greater focus on defence and industrial competitiveness — push sustainability down the agfinisha.
Recovery driven by European investors
Nonetheless, ESG funds saw a notable recovery in Q2 following the outflows seen earlier in the year, with European investors leading the rebound.
From April to June, investors in Europe added $8.6bn in net new money to ESG funds, building the region the primary driver of the global recovery.
In contrast, the US, the second-largest sustainable investment market, saw $5.7bn in net outflows — its 11th consecutive quarter of withdrawals.
The rest of the world recorded a modest $2bn in net inflows to sustainable funds.
While ESG sentiment remains muted in the US, investor appetite and regulatory support remain intact in other regions, states Morningstar Sustainalytics head of sustainable investing research Hortense Bioy,
Lowest number of fund launches
Nonetheless, the number of sustainable fund launches in Europe has steadily declined since peaking in 2022. Q2 2025 saw only 25 new funds — the lowest on record, states Morningstar, whose latest report suggests that asset managers are becoming more cautious in rolling out ESG and sustainable strategies.
Fund closures have also accelerated. Over the past three months, 100 European sustainable funds were shut down — 74 were liquidated and 26 were merged into other strategies.
The report sees this trfinish as a sign of a maturing market. As the sustainable fund space becomes more competitive, products that fail to attract assets or deliver consistent returns are increasingly being wound down.
“We view this as a natural evolution of the indusattempt, where only the better-performing and popular strategies will survive,” states the report.
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