Global sustainable open-end and exchange-traded funds (ETF) suffered record outflows in Q1 2025 as global uncertainty and a ‘growing backlash’ against ESG investing impacted sentiment, according to data from Morningstar.

Investors withdrew an estimated $8.6bn between January and March 2025, marking a sharp reversal from the $18.1bn of inflows in Q4 2024.

Europe recorded its first quarter of net outflows since Morningstar started tracking this sector, with redemptions totalling around $1.2bn, while US investors pulled capital for the 10th quarter in a row.

Although Asia also saw net outflows, Canada, Australia, and New Zealand experienced net inflows into sustainable funds.

Global sustainable fund assets fell slightly to $3.16trn at the end of March, which Morningstar said reflected weakness in the US equity market, and product development slowed as 54 new sustainable funds were launched.

Meanwhile, rebranding activity increased, with 335 sustainable products changing names in Europe, including 116 dropping ESG-related language.

A total of 94 products were liquidated or merged, and the US experienced the highest number of sustainable fund closures on record for a single quarter (20).

Morningstar said it expected the universe of sustainable funds to intensify ahead of the EU’s upcoming rules on fund naming and anti-greenwashing.

“The quarter signals a shift, not just in flows, but in how sustainable investment strategies are being perceived and positioned in the market,” commented Morningstar Sustainalytics head of sustainable investing research, Hortense Bioy.

“We’re seeing further signs of consolidation, rebranding activity, and cautious product development, amid an intensifying ESG backlash in the US which is now also noticeably affecting sentiment in Europe.

“Investor appetite for ESG funds will continue to be tested in the months ahead by an evolving regulatory landscape and mounting geopolitical tensions.”

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