Global assets in open-end funds and ETFs with a climate-related mandate reached a record high of $644 billion in June 2025, up 8.5% from the end of last year, according to Morningstar’s data.
Europe continues to drive growth with 86% of assets, while China and the US saw more moderate gains, shared the data provider.
During the first half of 2025, climate transition funds backing companies preparing for a low-carbon economy rose 16% to $318 billion worldwide. Green bond funds also grew 14% to $44 billion, putting them at par with clean energy and technology funds, whose assets slipped 1.8% after years of weaker performance.
Investors continued to favour transition strategies despite wider outflows across the climate funds space, according to the data. While the overall category lost $13.8 billion in the first half of the year, transition funds gained $2.5 billion new money.
In contrast, nearly $12 billion was withdrawn from climate solutions and clean energy or tech funds. Morningstar noted that, even with a rebound in green energy stocks, investor sentiment stayed cautious amid global economic, regulatory and geopolitical uncertainty.
Transition finance seen as key to the UK’s green growth
Passive funds tracking Paris-aligned benchmarks saw $1.7 billion in outflows, while active transition funds pulled in almost $2 billion, suggesting investors preferred active management in a volatile environment. The Paris Agreement’s objectives are a set of EU standards designed to help investors align their portfolios with a focus on cutting carbon emissions and excluding companies, aiming to keep global warming below 2°C.
Clean energy and tech funds, meanwhile, broke a four-year streak of poor returns—European funds gained an average 11.8%, outperforming the 9.9% rise in the Morningstar Global Index.
84% of climate funds are better aligned with a net-zero pathway than the average global fund, showed the analysis, though none yet fully align with a 1.5°C warming scenario.
Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics, explained: “Despite multiple headwinds, including the ESG backlash and climate policy reversals, the universe of climate-focused funds continues to expand, both in number and in assets. Investor appetite for climate transition strategies is particularly noteworthy. The sustained growth in this segment, alongside the rise in green bond funds, reflects a growing desire to focus on companies that are better prepared for the low-carbon transition.
Meanwhile, investors seem to have missed this year’s strong rally in key transition enablers—renewable energy companies—as strategies focused on these continued to see outflows despite their outperformance.”
