Key Impact Points:
- Investors pulled a record $8.6 billion from sustainable funds globally in Q1, led by $6.1 billion in U.S. withdrawals.
- Europe saw its first net outflows since 2018, with $1.2 billion withdrawn amid shifting sentiment and U.S. political influence.
- Sustainable fund launches and ESG product branding declined sharply as asset managers brace for backlash.
Sustainable Funds See Record Outflows Amid ESG Backlash
Global sustainable funds recorded net outflows of $8.6 billion in Q1 2025, the largest on record, according to Morningstar. The pullback is tied to growing resistance to climate and social investing, driven in part by the return of U.S. President Donald Trump and his deregulatory agenda.
European Funds Reversed Course
Europe, which holds the bulk of the global sustainable fund market at $3.16 trillion, saw net withdrawals of $1.2 billion, marking its first outflows since at least 2018. That’s a sharp reversal from Q4 2024, when net deposits totaled $20.4 billion.
“Trump’s return to the White House deprioritized sustainability goals in Europe,” Morningstar said, noting legal risks stemming from actions like executive orders targeting diversity, equity and inclusion (DEI) efforts.
U.S. Leads the Retreat
The U.S. accounted for $6.1 billion of the total withdrawals—its tenth straight quarter of outflows. Investors are also reacting to performance concerns in sectors such as clean energy.
“The quarter signals a shift, not just in flows, but in how sustainable investment strategies are being perceived and positioned in the market,” said Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics.
Managers Rebrand as New Launches Fall
Sustainable fund launches plummeted, with only 54 new products launched in Q1, down from 105 the previous quarter. Meanwhile, asset managers rebranded 335 funds, more than double the previous quarter, often by altering or removing ESG language.
“We’re seeing further signs of consolidation, rebranding activity, and cautious product development, amid an intensifying ESG backlash in the U.S. which is now also noticeably affecting sentiment in Europe,” Bioy added.
Related Article: Trump Planning to Exit Paris Accords
