Morningstar: Europe Drives Global Sustainable Fund Inflows In Q1 2026

Global sustainable funds drew $3.5 billion in net inflows in Q1 2026, reversing $27 billion in outflows in Q4 2025.
Europe drove the recovery with about $9.1 billion to $9.2 billion in inflows, while US sustainable funds posted their 14th straight quarter of withdrawals.
Sustainable fund assets fell 10% to $3.51 trillion, as market volatility outweighed the return of investor inflows.

Europe Pulls Global ESG Funds Back Into Positive Territory

Global sustainable funds returned to net inflows in the first quarter of 2026, after a bruising year of withdrawals, according to Morningstar’s latest Global Sustainable Fund Flows report.

Open-end and exchange-traded sustainable funds recorded estimated net inflows of $3.5 billion in the quarter. That marked a sharp reversal from the $27 billion in net outflows recorded in the final quarter of 2025.

The rebound was not evenly spread. Europe carried the recovery, with sustainable funds attracting about $9.1 billion to $9.2 billion in net new money. It was the region’s first positive quarter since the second quarter of 2024.

The US remained under pressure. Sustainable funds there suffered $4.3 billion in net outflows, marking the 14th consecutive quarter of withdrawals. The rest of the world also recorded net redemptions overall, although Canada and Australia/New Zealand posted modest inflows.

Passive Funds Drive Europe’s Recovery

Europe’s recovery was led by passive sustainable funds, which attracted $24 billion in net inflows during the quarter. Active sustainable funds continued to lose money, with redemptions of $14.8 billion.

That split points to a deeper shift in sustainable investing. Investors are still allocating to ESG and sustainability products, but they are doing so with greater cost discipline. Passive strategies are benefiting from that preference.

Fixed income also remained a bright spot. European sustainable bond funds attracted $9.5 billion in net inflows, while equity funds returned to positive territory with $2.8 billion in inflows. Allocation funds continued to face redemptions, although the pace slowed from the previous quarter.

The strongest fund-level demand came from 1895 Aandelen Thematic Opportunities, which drew $3.1 billion. Swisscanto’s responsible aggregate bond fund and Coutts Emerging Markets Equity Index also ranked among the top sellers.

At the provider level, BlackRock led European sustainable fund inflows with $10.5 billion. Swisscanto and Amundi followed with $4 billion and $3.4 billion, respectively.

US Sustainable Funds Remain Under Pressure

The US market told a different story. Investors withdrew $4.3 billion from sustainable US funds in the quarter, broadly in line with the previous two quarters.

Conventional US funds moved in the opposite direction. They attracted $337 billion over the same period, showing that the weakness was specific to sustainable products rather than a wider retreat from funds.

Passive sustainable US funds attracted $3 billion in inflows. But that was not enough to offset the $7.3 billion pulled from active strategies.

Equity funds remained the weakest area. US sustainable equity funds recorded $4.6 billion in outflows, extending their losing streak to 14 quarters. Fixed income was the only major US sustainable asset class to attract new capital, with $469 million in inflows.

The US backdrop remains shaped by political pressure, anti-ESG sentiment, and regulatory uncertainty. For asset managers, that creates reputational risk and product risk. For investors, it complicates fund selection and long-term allocation decisions.

Assets Fall Despite Renewed Inflows

The return to positive flows did not prevent a decline in global sustainable fund assets.

Morningstar reported that global sustainable fund assets fell about 10% to $3.51 trillion at the end of March 2026. That was down from $3.90 trillion at the end of 2025.

The decline was mainly driven by negative market performance. Equity markets pulled back during the quarter as global trade uncertainty and geopolitical tensions weighed on risk assets.

Europe still dominates the sustainable fund market. It accounts for about 85% of global sustainable fund assets. The US represents roughly 10%, while the rest of the world makes up the balance.

Since the end of 2018, global sustainable fund assets have still grown nearly sixfold from about $600 billion. That longer-term growth shows the category has not disappeared, even as flows have weakened.

Product Launches Hit New Lows

Product development slowed sharply in the first quarter. Only 17 sustainable funds launched globally, down from a revised 50 in the previous quarter.

Asia ex-Japan accounted for nine new launches. Europe added eight. The US, Canada, Australia/New Zealand, and Japan recorded no new sustainable fund launches during the quarter.

That slowdown reflects a more cautious industry. Asset managers are consolidating existing ranges, reassessing demand, and managing greenwashing risk. In Europe, firms are also watching the review of the Sustainable Finance Disclosure Regulation and broader sustainable finance policy changes.

For executives and investors, the message is clear. Sustainable investing is not moving in one global direction. Europe is recovering, the US remains politically constrained, and product innovation has cooled.

The first quarter showed that ESG capital is still active. But it is now more selective, more passive, and more exposed to policy risk than during the boom years.

Read the Global Sustainable Fund Flows: Q1 2026 here.