Data from Morningstar for Q2 2025 point to a reversal of investor attitudes towards ESG funds, with $4.9bn of net inflows measured globally versus the redemptions of $11.8bn seen in Q1.
In Europe, the inflows were higher still, accounting for $8.6bn of net new money into ESG funds, reversing the redemptions of $7.3bn seen in the first quarter.
Investors in the US continue to remain cool, however, as redemptions for the 11th consecutive quarter hit $5.7bn. The rest of the world saw a net $2bn invested.
Hortense Bioy, head of Sustainable Investing Research at Morningstar Sustainalytics, commented: “Despite the ESG backlash and the volatility sparked by geopolitical tensions and US tariffs, the picture for ESG funds improved last quarter. European Investors have returned to ESG funds, marking a notable reversal from the redemptions seen in the previous quarter. While it’s still doom and gloom in the US, ESG funds in other parts of the world continue to attract money and regulators outside the US are largely maintaining their course.”
Other key data points noted by Morningstar include:
- Global ESG fund assets rose by 10% in the second quarter to $3.5trn, supported by stock market appreciation
- 72 new ESG funds launched globally over the quarter, boosted by the rollout of a new incentive scheme in Thailand.
- Renaming activity in Europe reached a record high in the second quarter, as asset managers rushed to implement the EU’s ESMA fund naming guidelines. Close to 600 funds were renamed over the past three months.
- At least 1,346 funds, or 24% of Morningstar’s European fund universe, representing about $1trn in assets, have been renamed over the past 18 months – including 785 that dropped ESG-related terms, 458 that changed ESG-related terms, and 103 that added ESG-related terms.
- In the UK, 110 funds have so far adopted an official sustainability label, representing $62bn of assets. These account for about 20% of UK-domiciled funds claiming sustainability characteristics.
Bioy added: “In the second quarter, asset managers scrambled to meet the May deadline for renaming funds under ESMA’s guidelines, leading to a record number of name changes. Notably, the majority of funds removed the acronym ‘ESG’ or related terms entirely from their names. However, many opted to replace these with alternative terms that still signal differentiation and, in practice, continued consideration of ESG factors. Overall, the impact of the guidelines on investment strategies and portfolios appears to be limited.”
