Investor appetite for sustainably labelled funds appears to have reversed in 2025, as open-ended and exchange-traded funds reported significant outflows amid persistent geopolitical challenges.
Globally, sustainable open-ended and exchange-traded funds recorded $84bn in net outflows over the past year, with $27bn withdrawn in the fourth quarter alone. The figures signal waning demand for sustainably labelled, off-the-shelf investment vehicles, according to Morningstar data.
This marks a sharp deterioration from 2024, when sustainable funds still attracted $38bn in net inflows.
While US investor appetite had been weakening for some time — with outflows recorded for the 13th consecutive quarter, including $4.6bn in Q4 2025 — sentiment elsewhere had, until recently, remained more resilient.
“2025 was undeniably a challenging year for sustainable investing,” Morningstar’s report said. “Factors affecting investor appetite for sustainable funds included geopolitical tensions, anti-ESG sentiment, regulatory uncertainty, and mixed performance.”
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The tougher environment is also reflected in Lipper’s fund flow data, which show outflows from European Article 8 and Article 9 funds in the fourth quarter.
“Equity SFDR Article 8 and 9 funds suffered the worst redemptions, despite €31.91bn of inflows into conventional equity funds. This was driven by Article 9 redemptions (-€7.66bn), while their Article 8 peers saw inflows (+€2.8bn),” said Dewi John, head of EMEA research at LSEG Lipper.
However, while Morningstar and Lipper data capture trends in mutual funds, the picture for institutional portfolios is more nuanced, Morningstar noted.
“Redemptions by large UK institutional investors — reallocating from pooled ESG funds into bespoke ESG mandates — accounted for much of the outflow in both quarters,” the data provider said.
Although flows into segregated mandates are harder to track, the past year has seen several major portfolio restructuring announcements. These include UK master trust The People’s Pension, which shifted a £28bn portfolio into segregated mandates.
Moreover, Morningstar's research also notes that overall sustainable fund assets rose by about 4% in the fourth quarter to $3.9trn. However this is predominantly due to overall stock market appreciation, rather than inflows.
