US Sustainable Funds Registered a Third Consecutive Year of Outflows in 2025

Investors continued to withdraw from US sustainable funds in 2025, marking the third consecutive calendar year of outflows and the worst year on record since Morningstar began keeping track more than 10 years ago. However, the surge in usage of AI technologies and the consequent increase in demand for electricity boosted flows into some sustainable funds that target clean energy companies.

Demand Remains Weaker for ESG Funds vs. Non-ESG Funds in the US

US investors redeemed roughly $4.6 billion from sustainable funds in 2025’s fourth quarter, driving total annual outflows to about $21 billion last year. Annual outflows were slightly worse than in 2024, when the segment shed just under $20 billion.

Meanwhile, the overall universe of US long-term open-end and exchange-traded funds (encompassing conventional as well as sustainable funds) collected $320 billion in the fourth quarter, bringing the 2025 total to more than $760 billion in net inflows.

Sustainable funds still represent a small portion of all US funds, so the organic growth rate helps to put the magnitude of net flows and redemptions into perspective. The organic growth rate measures net flows as a percentage of total assets at the start of a given period. The net outflows from sustainable funds in 2025 accounted for 6% of their total assets at the beginning of the year. On the other hand, US funds as a whole experienced organic growth of 2.5% because of increased demand in 2025.

Clean Energy Drives Growth in Passive Funds Amid the AI Boom

Passive sustainable funds saw their greatest quarterly intake in more than three years, collecting $2.5 billion during the quarter. The fourth quarter’s growth offset withdrawals in the three previous quarters, and passive sustainable funds netted their first annual inflows since 2022.

Although inflows and outflows alike were spread across a variety of funds, 2025 and especially the fourth quarter were dominated by one fund: First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index GRID. Launched in 2009, this fund tracks an index of companies that develop electric grid infrastructure, energy storage and management, and related software, as paraphrased from the prospectus. Demand for this fund accelerated in the fourth quarter, when it collected $1.3 billion in net new money, bringing its annual haul to more than $2.5 billion and driving assets above $5 billion.

However, inflows to passive funds didn’t offset withdrawals from actively managed sustainable funds, which recorded their largest losses since the segment’s strong growth in 2020 and 2021. These active funds registered outflows of $7.1 billion in the fourth quarter and $22 billion over the course of 2025. This trend bears some similarity to US funds overall, where active funds have seen consistent outflows since 2021. Active funds used to account for a solid majority of assets in environmental, social, and governance funds in the US, but they have gradually lost share to passive offerings.

Parnassus Core Equity PRBLX continued to suffer the brunt of outflows from actively managed sustainable funds, giving up $2.5 billion in 2025’s fourth quarter and more than $6.0 billion over the year. This fund was one of Parnassus’ first, having launched in 1992, and overall, this fund accounted for one-fourth of the total net outflows from active sustainable funds in 2025. Still, market appreciation has offset some of the outflows, and the fund remained the largest sustainable fund in the US with $26 billion in assets under management at the end of the year, albeit with Vanguard FTSE Social Index VFTNX close on its heels.

The artificial intelligence theme boosted some actively managed funds, too, with TCW Transform Systems ETF PWRD taking the net flows crown for active sustainable funds in 2025. This fund is highly concentrated, with fewer than 30 stocks as of the end of December, and it seeks to invest in companies that TCW believes will benefit from global transformations in the ways energy is produced and consumed, as paraphrased from the prospectus. Despite thematic similarities with the aforementioned First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index, the two funds have very little overlap in holdings except for a few companies, including French clean energy leader Schneider Electric SE SU and electric vehicle maker Tesla TSLA.

Assets Reach Record High, Driven by Market Appreciation

Despite continued withdrawals, total US sustainable fund assets increased to $368 billion at the end of December 2025, up slightly from $366 billion at the end of September. Active strategies, representing 54% of the total assets, dropped slightly to $198 billion, while passive assets increased to $169 billion. Despite investors withdrawing money for three consecutive years, assets in US sustainable funds reached a record high at the end of 2025, driven by stock market appreciation. The new record of $368 billion surpasses the previous peak registered in 2021.

For context, the Morningstar US Market Index gained 2.3% over the fourth quarter, while the Morningstar US Core Bond Index advanced by just under 1.0%.

Despite significant outflows from Parnassus Core Equity, the firm remains among the largest in the US sustainable funds universe with more than $30 billion in open-end and exchange-traded fund assets at the end of December. Meanwhile, BlackRock is the largest manager of US sustainable fund assets with more than $60 billion as of December.

Sustainable Fund Closures Continue

Closures of US sustainable funds continued to outpace launches throughout 2025, extending a trend that began in late 2023. Over the year, only nine new funds were launched, while 91 funds closed, highlighting the ongoing consolidation and subdued product development in the sustainable fund landscape.

Pictet Cleaner Planet ETF PCLN was the only new addition to the US sustainable fund universe in the last quarter of 2025, bringing the total number of launches for the year to nine. The Pictet fund targets climate solution themes, investing in activities such as “renewable energy, pollution control, water supply and technology, … [and] enabling technologies and infrastructure,” per the prospectus. It invests in some of the same clean energy companies as TCW Transform Systems ETF, such as First Solar FSLR.

Another climate fund, Invesco Global Equity Net Zero ETF IQSZ, launched in the third quarter. With $150 million in AUM at the end of December, this actively managed ETF invests in companies that are working to reduce greenhouse gas emissions and support a transition to a net zero economy, as paraphrased from the prospectus.

The fourth quarter saw 15 fund closures, bringing the total number of closures for 2025 to 97. Fidelity closed four sustainable offerings, namely Fidelity Sustainable Core Plus Bond ETF, Fidelity Sustainable Low Duration Bond ETF, Fidelity Sustainable U.S. Equity ETF, and Fidelity Women’s Leadership ETF. Humankind US Stock ETF was the largest fund to close; it had $165 million in assets at the end of October.