{"id":13490,"date":"2026-08-04T12:16:02","date_gmt":"2026-08-04T16:16:02","guid":{"rendered":"https:\/\/sdgnews.com\/?p=13490"},"modified":"2026-08-04T12:18:40","modified_gmt":"2026-08-04T16:18:40","slug":"u-s-sustainable-funds-break-a-three-year-losing-streak-as-grid-investment-surges","status":"publish","type":"post","link":"https:\/\/sdgnews.com\/ar\/u-s-sustainable-funds-break-a-three-year-losing-streak-as-grid-investment-surges\/","title":{"rendered":"U.S. Sustainable Funds Break a Three-Year Losing Streak as Grid Investment Surges"},"content":{"rendered":"

U.S. sustainable investment funds attracted net new money during the second quarter of 2026 for the first time in more than three years, although the rebound was heavily concentrated in passive strategies linked to electricity-grid infrastructure.<\/em><\/strong><\/p>\n\n\n\n

Investors added nearly $3 billion to U.S. sustainable open-end funds and exchange-traded funds during the quarter, ending a run of 14 consecutive quarters of net withdrawals that began in early 2022, according to Morningstar.<\/p>\n\n\n\n

The reversal offers an early indication that demand may be recovering in selected areas of sustainable finance. It does not, however, represent a broad return to environmental, social and governance investing. Much of the growth came from a single smart-grid fund, while actively managed sustainable strategies continued to lose assets.<\/p>\n\n\n\n

Passive Strategies Lead the Rebound<\/h3>\n\n\n\n

Passive sustainable funds attracted approximately $6.5 billion during the quarter, offsetting around $3.6 billion in withdrawals from actively managed strategies.<\/p>\n\n\n\n

The First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index Fund alone received approximately $3.1 billion\u2014slightly more than the sustainable-fund market gained overall. The fund invests in companies involved in electricity transmission, grid modernization, energy storage, power management and related infrastructure.<\/p>\n\n\n\n

Its growth reflects increasing investor attention to the physical systems supporting electrification and the digital economy. Expanding data centers, artificial-intelligence infrastructure, electric vehicles and renewable generation are placing additional pressure on electricity networks, strengthening demand for transmission capacity, grid equipment and energy-management technologies.<\/p>\n\n\n\n

The result does not establish that AI demand is driving the broader sustainable-fund market. It does suggest that investors are finding opportunities where the energy transition overlaps with infrastructure needs, electricity security and technological growth.<\/p>\n\n\n\n

A Reversal After Three Years of Withdrawals<\/h3>\n\n\n\n

The positive quarter follows a prolonged downturn for sustainable investment products in the United States.<\/p>\n\n\n\n

U.S. sustainable funds lost approximately $21 billion during 2025, their third consecutive year of net withdrawals. Investors removed a further $4.3 billion during the first quarter of 2026, even as conventional U.S. funds attracted approximately $337 billion.<\/p>\n\n\n\n

The second-quarter recovery therefore represents a meaningful change in direction, but the scale remains modest relative to the wider fund market. Sustainable funds recorded an organic growth rate of approximately 0.8%, compared with around 1% across U.S. funds more broadly.<\/p>\n\n\n\n

Assets held by U.S. sustainable funds nevertheless increased from approximately $351 billion at the end of March to roughly $398 billion at the end of June, supported by both new investment and rising market values.<\/p>\n\n\n\n

Global Sustainable Flows Begin to Stabilize<\/h3>\n\n\n\n

The U.S. rebound formed part of a limited improvement in global flows.<\/p>\n\n\n\n

Sustainable funds outside China attracted an estimated $3.7 billion during the second quarter, with Europe contributing approximately $3.5 billion. Globally, passive sustainable strategies attracted $11.4 billion, while actively managed funds recorded $7.8 billion in withdrawals.<\/p>\n\n\n\n

The improvement followed a difficult 2025, when global sustainable funds recorded approximately $84 billion in net withdrawals\u2014the first annual outflow since Morningstar began tracking the market in 2018.<\/p>\n\n\n\n

Europe continues to dominate the sector, accounting for more than four-fifths of global sustainable-fund assets, while the United States represents a significantly smaller share.<\/p>\n\n\n\n

Investors Become More Selective<\/h3>\n\n\n\n

The composition of the latest flows suggests investors are distinguishing more sharply between sustainable-investment strategies.<\/p>\n\n\n\n

Passive and fixed-income products have continued to attract capital, while actively managed equity funds have faced sustained withdrawals. Sustainable fixed-income funds gained more than $14 billion globally during the second quarter, while sustainable equity funds lost around $9 billion, according to Morningstar data reported by Reuters.<\/p>\n\n\n\n

The shift may partly reflect demand for lower fees and more clearly defined exposure. It may also indicate movement away from broadly branded ESG products toward strategies connected to specific economic themes, including energy security, infrastructure resilience and industrial modernization.<\/p>\n\n\n\n

Asset managers interviewed by Reuters said firms are increasingly describing sustainable strategies through the language of resilience, risk management and energy security rather than presenting them primarily as vehicles for environmental or social objectives.<\/p>\n\n\n\n

That evolution may broaden the appeal of some products, but it also raises questions about how consistently sustainability is defined and measured.<\/p>\n\n\n\n

Fund Closures Continue Despite Renewed Flows<\/h3>\n\n\n\n

The return to positive flows has not reversed the industry\u2019s broader consolidation.<\/p>\n\n\n\n

Europe launched only 13 sustainable funds during the second quarter\u2014the lowest number recorded by Morningstar\u2014while 64 products were closed. In the United States, three sustainable funds were launched and 22 were closed.<\/p>\n\n\n\n

Since the beginning of 2023, 956 sustainable or ethical funds have been withdrawn from the global market, compared with 691 launches, Reuters reported.<\/p>\n\n\n\n

The contraction reflects a combination of investor withdrawals, political opposition, performance concerns, regulatory scrutiny and pressure on asset managers to substantiate environmental claims.<\/p>\n\n\n\n

Performance has also remained a challenge. Over the five years through July 2026, the MSCI All Country World Index returned approximately 65%, compared with about 56% for its socially responsible counterpart, according to LSEG data cited by Reuters. The gap has reinforced concerns that some sustainability screens may limit exposure to sectors\u2014including conventional energy and defense\u2014that have performed strongly.<\/p>\n\n\n\n

Regulation Remains in Transition<\/h3>\n\n\n\n

Regulatory uncertainty continues to shape the U.S. market.<\/p>\n\n\n\n

Amendments to the Securities and Exchange Commission\u2019s Names Rule broadened the requirement that funds invest at least 80% of their assets in accordance with the characteristics suggested by their names. The expanded rule applies to names indicating that a fund focuses on investments or issuers with particular environmental, social or other characteristics.<\/p>\n\n\n\n

The SEC extended the compliance deadline to June 2026 for larger fund groups and December 2026 for smaller groups.<\/p>\n\n\n\n

Separately, the commission proposed in May to rescind climate-related disclosure rules adopted in 2024. The rules, which were stayed and never became operational, would have required publicly listed companies to provide standardized information about certain climate risks and emissions.<\/p>\n\n\n\n

Supporters of rescission argue that the requirements exceeded the SEC\u2019s authority and would impose unnecessary costs. Critics contend that removing standardized disclosure requirements could make it more difficult for investors to compare corporate climate risks.<\/p>\n\n\n\n

A Recovery Concentrated in Infrastructure\u2014and Still Unproven<\/h3>\n\n\n\n

The return of U.S. sustainable funds to positive flows is significant because it interrupts more than three years of withdrawals. But the underlying figures provide limited evidence of a broad sustainable-investment recovery.<\/p>\n\n\n\n

One smart-grid ETF attracted more money than the entire sector gained on a net basis. Passive strategies grew, while active funds continued to lose capital. Fund closures also substantially outnumbered launches in both the United States and Europe.<\/p>\n\n\n\n

The quarter may instead point to a more selective phase of sustainable finance\u2014one in which investors favor products connected to measurable economic requirements such as electricity transmission, grid resilience, data-center expansion and energy security.<\/p>\n\n\n\n

Those areas sit at the intersection of climate transition, technological development and national infrastructure. Whether they can support a lasting recovery will depend on performance, policy stability and the ability of fund managers to demonstrate that their sustainability claims correspond to clearly defined investments and outcomes.<\/p>\n\n\n\n

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