Global Sustainable Fund Flows Turn Positive in Q1 2026 Led by Europe

Global sustainable investment funds recorded net inflows of $3.5 billion in the first quarter of 2026, rebounding from $27 billion of outflows in the prior quarter, according to a Morningstar Sustainalytics report. European funds drove the turnaround with $9.1 billion of net inflows, while U.S. funds recorded a 14th consecutive quarter of outflows at $4.3 billion.

Global sustainable fund assets declined by approximately 10% in Q1 2026 to $3.51 trillion, primarily due to equity market volatility driven by uncertainty over global trade policy. The turnaround in flows was led by passive strategies, with Europe recording $24 billion in passive sustainable fund inflows and the U.S. $3 billion, while active funds in both regions saw net outflows of $14.8 billion and $7.3 billion respectively. Europe accounts for approximately 85% of global sustainable fund assets, with the U.S. at roughly 10%.

The Q1 rebound follows 2025, in which Europe saw its first annual sustainable fund outflow on record, with redemptions of $62 billion. The divergence between passive and active strategies reflects broader investor preference for lower-cost, rules-based exposure rather than actively managed ESG strategies, which face greater scrutiny over performance and definitions. The anti-ESG political environment in the U.S. continues to weigh on domestic sustainable fund flows, with outflows extending a multi-quarter trend.

Product development activity slowed sharply in Q1 2026, with only 17 new sustainable funds launched globally compared to 50 in Q4 2025. Nine were launched in Asia and eight in Europe, with no new sustainable fund launches in the U.S. Kenneth Lamont of Morningstar described the current environment as 'a reset rather than a retreat,' with investors becoming more selective and focused on strategy clarity and demonstrable outcomes. Sustainable fund assets remain nearly six times the level recorded at end-2018.

Key figure — $3.51 trillion in global sustainable fund assets at end of Q1 2026