The global sustainable fund universe—composed of open-end and exchange-traded funds focused on sustainability; impact; or environmental, social, and governance factors—endured their worst quarter on record in the first quarter of 2025, registering net outflows of $8.6 billion. This marked a sharp reversal from the $18.1 billion in restated inflows seen in the final quarter of 2024.
The pullback occurred across nearly all major regions, led by the US and Europe, which together accounted for the bulk of global redemptions.
The US suffered its 10th consecutive quarter of withdrawals, reaching $6.1 billion in the past three months.
Europe suffered its first quarter of net outflows since we started tracking this universe in 2018. Withdrawals amounted to $1.2 billion, contrasting with the restated inflows of $20.4 billion in the final quarter of 2024.
Redemptions in Asia (excluding Japan) totaled $918 million, while Japanese funds also saw negative flows—albeit slightly reduced compared with the previous quarter, falling below $900 million.
Only Canada, Australia, and New Zealand registered inflows, each attracting around $300 million.
Despite the record outflows, the global ESG fund universe maintained its high level of assets at $3.16 trillion at the end of March.
A key explanation for the global outflows in the first quarter of 2025 was modest—yet meaningful—redemptions in Europe. Up to last quarter, European sustainable funds had consistently attracted positive flows, including in the fourth quarter of 2023, when conventional funds experienced withdrawals. In the past quarter, however, for the first time since at least 2018, European sustainable funds suffered outflows, in contrast with the strong inflows registered by their conventional peers.
Several interconnected factors help explain this reversal. First, an increasingly complex geopolitical environment, shaped in part by President Donald Trump’s return to the White House, has deprioritized sustainability concerns in Europe, including climate goals. Attention has shifted toward economic growth, competitiveness, and defense.
In addition, Trump’s anticlimate agenda and anti-ESG policy measures, such as an executive order targeting diversity, equity, and inclusion, have introduced new legal risks. These developments have prompted asset managers in the US to adopt a more cautious global approach in promoting their ESG credentials and supporting sustainability issues.
For some European investors, the rollback in ESG commitments by US firms has created hesitation, undermining the sense of global alignment on climate and sustainability goals. This hesitation is further compounded by an evolving European regulatory agenda and ESG fund landscape, while persistent performance concerns— particularly in already challenged sectors such as clean energy—continue to weigh on investor appetite for sustainability strategies.
European Rebranding Accelerates Ahead of Anti-Greenwashing Rule Deadline
Meanwhile, asset managers’ rebranding activity—whether adding, dropping, or changing ESG-related terms in product names—hit a “new high” in the first quarter ahead of incoming requirements on fund names in both the EU and UK.
The UK’s naming and marketing rules, under the Sustainability Disclosure Requirements framework, took effect in April, while the European markets watchdog’s fund naming guidelines will apply to existing funds from May 21.
An estimated 335 European funds with ESG-related terms in their names rebranded in the first quarter of the year, including 116 that dropped ESG-related terms. Meanwhile, the number of funds swapping ESG-related terms in their names more than doubled in the past three months, many of them passive strategies.
The acronym “ESG” overtook “sustainable” or “sustainability” to become the most removed term during the three-month period. It was dropped by 128 funds, 96 of which were passive strategies.
“Sustainable” or “sustainability” were ditched by more than 90 funds and added by only one in the quarter, while the word “climate” saw 16 additions compared with 11 removals.
In total, over the past 15 months, we estimate that more than 640 European funds with ESG-related terms in their names (14%) have rebranded, including more than 590 (12%) that have dropped or changed ESG terms.
“Screened” is the most popular term added by funds, followed by “ESG,” “transition,” and “climate.” New words have emerged to replace contentious terms and signal differentiation and, in practice, ESG considerations. These words include: select, committed, advanced, optimized, leaders, tilt, thoughtful, and enhanced.
This trend is expected to continue beyond the May compliance deadline, as more data is collected.
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