Sustainable fund assets fall by €1trn in Q1 amid market turmoil and ESMA rule changes

Sustainable investment funds in Europe suffered a sharp setback in the first quarter of 2025, with assets under management (AUM) falling by around €1trn, a trend accelerated by the introduction of new labelling rules for green funds. 

The decline was driven by a combination of falling asset prices and major outflows from Article 9 funds, which are the most stringent under the EU’s sustainable finance disclosure framework, according to the latest Everything Green Flows report by LSEG Lipper. Total AUM in Article 8 funds dropped from €8.03trn to €7.07trn, while dark green Article 9 funds declined more steeply, from €344.89bn to €251.1bn.

Article 9 equity funds saw the biggest losses, with AUM shrinking to 66.5% of the previous quarter's total. Meanwhile, Article 8 bond funds emerged as the quarter's top performer, attracting €41.27bn in net flows. Money market funds followed with €36.66bn, while sustainable equity funds in Europe were the best-sellers in their category, drawing €14.91bn.

These trends reflect growing investor concerns about the repercussions of global trade wars and increased investor appetite for fixed income assets. 

They are accelerated by ESMA's new labelling regime for green funds, which entered into force in May and imposes more stringent criteria on the type of assets that can be included in funds labelled ESG or Sustainable, in a bid to tackle greenwashing. The introduction of these new rules has sparked a steep drop in funds being labelled sustainable explains Dewi John, head of Research at LSEG Lipper.

"Regulation continues to be a major driver of sustainability-related fund assets in Europe, as evidenced by the response to ESMA’s guidelines on fund names. From 2024 to the end of April 2025, LSEG Lipper recorded 388 funds adding ESG-related terms, representing an AUM of €90.42bn as of 30 April 2025. However, over the same period 757 funds dropped ESG-related terms, representing an AUM of €399.81bn" he adds.

US-focused sustainable equity funds, however, suffered the largest redemptions, shedding €4.02bn, despite attracting €14.8bn overall. Funds with exposure to alternative energy and water utilities also continued to bleed assets, reflecting sector challenges amid higher interest rates.

Overall, Article 8 and 9 funds saw combined net flows of €72.76bn in Q1, with bond strategies faring best. However, redemptions from Article 9 equity funds and a cooling in investor appetite for thematic strategies contributed to the worst quarter on record for sustainable fund assets.

Lipper data tracks collective investment vehicles such as mutual funds and ETFs but does not cover segregated mandates.