Global sustainable investment funds returned to positive net flows in the first quarter of 2026, after declining through 2025, with the rebound led by a sharp turnaround in Europe, while the U.S. continued to see outflows, according to a new report by ESG and corporate governance research, ratings and analytics provider Morningstar Sustainalytics.

While fund flows returned to positive territory, the report also found that global sustainable fund assets declined by approximately 10% in the quarter to $3.5 trillion, with the contraction driven by geopolitically-driven volatility and negative market performance.

For the report, Morningstar Sustainalytics analyzed activity in the global sustainable fund universe, which encompasses open-end funds and ETFs that, by prospectus or other regulatory filings, claim to focus on sustainability, impact, or ESG factors.

Overall, the report found that sustainable funds recorded net inflows in Q1 2026 of $3.5 billion, rebounding sharply from $27 billion of outflows in the prior quarter, and of more than $50 billion in Q3 2025.

The rebound was led by European-domiciled funds, which recorded net inflows of $9.1 billion in the quarter, according to the report, marking a significant turnaround from more than $16 billion in outflows in the prior quarter, and Europe saw its first annual sustainable fund outflow in 2025, with redemptions of $62 billion.

By contrast, U.S. funds experienced their 14th consecutive quarter of outflows, with net redemptions of $4.3 billion, roughly flat with the prior two quarters of -$3.9 billion (Q4 2025) and -$4.7 billion (Q3 2025).

By fund type, the report found that both Europe and the U.S. recorded positive inflows into passive sustainable funds of $24.0 billion and $3.0 billion, respectively, while active funds saw net outflows in both regions of -$14.8 billion and -$7.3 billion, respectively. By asset class, fixed income funds also experienced positive flows in both regions, including $9.5 billion in Europe and $0.5 billion in the U.S., while they diverged in equity funds, which saw $2.8 billion net inflows in Europe, and $4.6 billion outflows in the U.S.

Kenneth Lamont, Principal, Manager Research at Morningstar, said:

“The return to modest inflows in the first quarter suggests that investor appetite for sustainable strategies has not disappeared, but it remains fragile and highly region-specific. Europe continues to stand out, with flows turning positive again, supported by strong demand for passive strategies.

“At the same time, the US market remains under pressure, with outflows extending their multi-quarter trend against a challenging political backdrop and ongoing scrutiny of ESG investing.”

While noting the return to positive net flows, the report also found that product development activity fell in the quarter, with only 17 new sustainable funds launched globally in Q1 2026, dropping from 50 new funds in the prior quarter. By region, nine new funds were launched in Asia, and eight new funds in Europe, while no new sustainable funds were launched in the U.S. or other regions in the quarter.

The report also found that global sustainable fund assets declined by approximately 10% to $3.51 trillion in Q1 2026, primarily due to an equity market pullback driven by heightened uncertainty over global trade policy, while Morningstar Sustainalytics noted that sustainable fund assets have grown considerably over the past few years, and are up nearly six time from around $600 million since the end of 2018. Europe now accounts for the significant majority of sustainable fund assets, at approximately 85%, followed by the U.S. at around 10%.

Lamont added:

“What we are seeing is a reset rather than a retreat. Growth is continuing, but at a slower pace, with investors becoming more selective and more focused on clarity around strategy, outcomes, and value.”

Click here to access the report.