Despite tensions and regulatory uncertainty, the picture is looking up for ESG funds. Morningstar’s latest report reveals that in Q2 this year, global ESG funds recorded an estimated net USD 4.9 billion in the second quarter of 2025 – a notable rebound from the record-high restated redemptions of USD 11.8 billion in the first quarter.
European investors drove this recovery, pouring USD 8.6 billion of net new money into ESG funds over the past three months, after redeeming USD 7.3 billion in the prior quarter. Meanwhile, sentiment on the other side of the pond continues to wane as investors in the United States pulled money from that part of the market for the 11th consecutive quarter, with withdrawals totalling USD 5.7 billion. The rest of the world, in aggregate, attracted USD 2 billion.
“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 U.S. are largely maintaining their course.”, said Hortense Bioy, Head of Sustainable Investing Research at Morningstar Sustainalytics.
Other takeaways include:
- Global ESG fund assets rose by 10% in the second quarter to USD 3.5 trillion, supported by stock market appreciation.
- Product development activity picked up, with 72 new ESG funds launched globally over the quarter. This was 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. In total, we estimate that at least 1,346 funds, or 24% of our European fund universe, representing about USD 1 trillion in assets, have been renamed over the past 18 months. These include 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 USD 62 billion of assets. These account for about 20% of UK-domiciled funds claiming sustainability characteristics.
“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.”, explained Hortense Bioy.
The full report can be found here. If you would like to share this with your reader, please use this link. Hortense is available for interview – if you would like to discuss the findings of this study further, I’d be happy to facilitate.
