US Sustainable Funds Returned to Positive Flows in Q2 2026

The second quarter of 2026 marked a noteworthy moment for US sustainable funds. After 14 consecutive quarters of net outflows, investors added nearly $3 billion to the category, the first quarter of positive flows since the beginning of 2022. Inflows and market appreciation drove assets in sustainable funds to nearly $400 billion, a new high-water mark.

Even so, conventional long-term funds continued to attract substantially stronger demand, collecting $356 billion during the quarter, up from $337 billion in the first quarter. Sustainable funds posted an organic growth rate of 0.8%, slightly below the 1.0% organic growth rate for the broader US fund universe.

Although the return to positive territory represents a notable shift after more than three years of withdrawals, investor demand focused on a relatively small group of passive strategies, while actively managed sustainable funds continued to experience redemptions.

Download the latest on global sustainable fund flows here.

Energy Demand and Electric Infrastructure Drove Investor Flows

One fund powered the recovery. First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index ETF GRID collected $3.1 billion, its fourth consecutive quarter of inflows, for a total of more than $7.5 billion over the past 12 months. The fund targets companies involved in strengthening the electric grid to better support surging demand from artificial intelligence usage and data centers, along with fluctuating supply from renewable energy sources. For instance, top holding Eaton ETN derives the majority of its revenue from selling electrical components for data centers, utilities, and other infrastructure; Schneider Electric SU (another top holding) is a global leader in energy management, electrical distribution, and industrial automation with a key foothold in data centers and networks.

Those companies shot up in the first half of 2026: Eaton gained nearly 35%, and Schneider was up 20%. This supported the fund’s 25% gain, which comfortably beat the Morningstar US Market Index’s 10.7% rise. To be fair, many of these AI-related plays (including Nvidia NVDA) pulled back in the second quarter, but year-to-date returns remain compelling.

Energy Security Boosted ESG Fund Returns

The AI-driven surge in energy usage coincided with conflict in the Persian Gulf that drove the cost of oil above $100 per barrel. Although most sustainable funds avoid exposure to traditional oil & gas companies, renewable energy stocks have also risen as governments look to diversify away from legacy energy suppliers.

For example, Enlight Renewable Energy ENLT almost doubled in 2026 through late July. It’s a top holding in First Trust Global Wind Energy ETF FAN, which has gained 16% over the same period and collected more than $60 million in net flows through the end of June.

Passive Strategies Powered the Recovery

Index-tracking funds, particularly those that focus on climate transition and renewable energy, generally enjoyed positive flows in 2026’s second quarter, which propelled the overall sustainable fund segment.

Passive sustainable strategies attracted $6.5 billion during the quarter, more than offsetting the $3.6 billion withdrawn from actively managed funds.

The gap between active and passive strategies’ asset flows has widened steadily over the past several years. Active sustainable funds have now experienced 13 consecutive quarters of outflows, while passive flows have improved markedly since late 2025.

This mirrors a broader trend across the US fund industry, where investors continue shifting toward lower-cost index products and away from many higher-cost, actively managed options.

Assets Reached Another Record

Strong market appreciation combined with positive flows pushed total US sustainable fund assets to a record $398 billion at the end of June, up 13% from $351 billion at the end of March.

Passive assets increased sharply, rising from $167 billion to nearly $199 billion during the quarter. As a result, passive strategies now account for almost half of all sustainable fund assets.

Equity strategies continue to dominate the sustainable fund universe, holding 85% of total assets, while fixed-income funds accounted for 14%.

Global Demand for Sustainable Funds Remained Uneven

The US continues to represent a small portion of the global sustainable fund landscape. Europe dominates, with more than 80% of fund assets, and flows into sustainable funds have been steadier in Europe over the past few years.

During the second quarter of 2026, sustainable funds attracted an estimated $3.7 billion in net flows globally, extending the rebound from the first quarter. The recovery, however, was uneven across regions. Europe and the US both saw net inflows, but Canada, Japan, Australia/New Zealand, and most of Asia ex-China continued to experience net redemptions.

At the end of the second quarter of 2026, global sustainable fund assets reached an estimated $3.7 trillion, up from $3.5 trillion at the end of the previous quarter and setting a record for the category. The increase was driven primarily by market appreciation, as asset growth far exceeded new inflows. The global asset total remains an estimate because China’s June assets under management were unavailable and therefore reflect March quarter-end levels, while Australia and New Zealand data covers the period only through May.

Download the global report here.