Global Sustainable Funds Return to Inflows as Passive ESG Dominates in Early 2026

In the first quarter of 2026, global sustainable funds returned to positive territory with net inflows of $3.5 billion, driven by Europe, while outflows continued in the United States. Passive strategies are gaining ground, and the launch of new ESG products is slowing.

The global sustainable funds universe is turning around and returning to positive territory

In the first quarter of 2026, open-ended products and ETFs focused on ESG strategies recorded an estimated net inflow of $3.5 billion, putting an end to the negative period of the second half of 2025. This is according to the Global Sustainable Fund Flows: Q1 2026 published by Morningstar, the quarterly report that analyzes the trend of flows, assets, and product development at an international level.

The performance was driven almost entirely by Europe, which offset continued outflows from the United States and weakness in other international markets. Despite the return of positive flows, total assets in global sustainable funds fell 10% compared to the previous quarter, reaching $3.51 trillion, amid high financial market volatility.

Europe: Positive trend in flows thanks to passive funds

In the first quarter of 2026, European sustainable funds recorded positive net inflows of $9.1 billion, interrupting a negative streak that began in the second quarter of 2024. The most significant finding from the report, however, concerns the clear divergence between passive and active management.

Passive funds and sustainable ETFs raised approximately $24 billion in the quarter, while active funds continued to record outflows of $14.8 billion.

Flows of European sustainable funds

Asset classes also saw an improvement compared to previous quarters. Sustainable equity funds returned to positive territory with $2.8 billion in net inflows following strong redemptions in the previous quarter, while bond funds recorded inflows of $9.5 billion, confirming investors’ preference for strategies considered more defensive and cautious in a period of macroeconomic and geopolitical uncertainty.

Among the major European market players, BlackRock recorded the largest net inflows in the quarter with $10.5 billion, while DWS recorded the largest outflows with outflows of approximately $3 billion.

United States: The long phase of outflows continues

Across the Atlantic, the sustainable funds market remains struggling. In the first quarter of 2026, investors withdrew $4.3 billion from ESG products, marking the 14th consecutive quarter of outflows. The US sustainable fund sector’s organic growth rate stood at -1.2%, a stark contrast to the US traditional fund market, which raised approximately $337 billion in the same period.

According to Morningstar’s report Global Sustainable Fund Flows, the American market continues to be burdened by political and regulatory pressures related to the anti-ESG debate, along with performances that in several cases have under-promoted fundraising. As in Europe, a significant gap between passive and active strategies is evident in the United States. Passive products recorded net inflows of approximately $3 billion, while active funds suffered outflows of $7.3 billion.

On the individual product front, the Vanguard FTSE Social Index Fund has become the largest ESG fund in the US market with $23.4 billion in assets, surpassing the Parnassus Core Equity Fund.

New ESG fund launches at an all-time low

The Global Sustainable Fund Flows report also highlights a sharp slowdown in the development of new sustainable products. In the first quarter of 2026, only 17 new sustainable funds were launched globally, the lowest quarterly figure in the historical series tracked by Morningstar.

Of the new products, nine were launched in Asia ex-Japan, all domiciled in China, and eight in Europe. There were no new launches in the United States, Canada, Japan, or Australia/New Zealand.

New sustainable fund launches globally by quarter

According to Morningstar, the slowdown in sustainable funds reflects a phase of consolidation among asset management companies, increasingly wary of the reputational and regulatory risks associated with greenwashing. In Europe, market attention remains focused on the revision of the SFDR, which will redefine the classification of sustainable products. In the United States, however, the SEC has postponed the implementation of some changes related to the Names Rule until 2027-2028, increasing regulatory uncertainty for sustainable funds operators.

The picture outlined by Morningstar report Global Sustainable Funds Flows also suggests a structural shift in the global ESG market: demand for sustainable strategies continues to exist, but tends to increasingly focus on passive, indexed and low-cost products, while active funds continue to lose ground in most developed markets.

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(Featured image by micheile henderson via Unsplash)

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