US sustainable funds see positive inflows for first time since 2022: Morningstar

Dive Brief:

• U.S. sustainable funds saw positive inflows during the year’s second quarter for the first time since 2022, after fourteen consecutive quarters of net outflows, according to a recent report from Morningstar.
• Sustainable funds domiciled in the U.S. pulled in nearly $3 billion in net inflows during the quarter, showing a 0.8% organic growth rate. 
• Despite the growth, conventional funds outperformed their sustainable counterparts in the quarter. After seeing $337 billion in net inflows in the first quarter, Morningstar found that conventional funds pulled in $356 billion in Q2.

Dive Insight:

The asset share for sustainable assets in the U.S. shrank slightly from 2024 to 2025, as modest increases were outpaced by the growth of the nation’s overall investment market, according to the U.S. Sustainable Investment Forum. Morningstar said the return to positive inflows came as investors placed $6.5 billion in sustainable funds that were passively managed, and active funds saw $3.6 billion in outflows, according to the report.

The total value of U.S. sustainable assets rose to $398 billion in the second quarter, marking a new record high and a 13% increase from the end of the year’s first quarter.

“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,” Morningstar researchers wrote in a July 30 blog.

Despite the changes, fund closures continue to outpace new sustainable fund launches in the country. Three new sustainable funds launched in the second quarter, while 22 funds closed. The four largest funds to close in the quarter had a combined $156 million in assets before they were merged or liquidated, the report said.

Fund closures increased from the first quarter of the year, when Morningstar documented 13 fund closures, which the report said reflects “continued consolidation across the sustainable fund universe.”

BlackRock — including its exchange-traded funds brand iShares — remains the largest manager of U.S. sustainable fund assets, with $76.1 billion in sustainable assets under management at the end of the second quarter, according to the report. Vanguard is managing $50.7 billion in sustainable assets, and Morgan Stanley — including its wholly-owned subsidiaries Calvert and Eaton Vance — is managing $36.6 billion. The three asset managers held the same ranking in the prior quarter.

Investors’ sustainable fund demand also reflected “interest in energy transition infrastructure and technologies supporting rising power usage from AI and data centers,” the report said. The First Trust Nasdaq Clean Edge Smart Grid Infrastructure — which supports“companies involved in strengthening the electric grid” for AI and data centers — has recorded four straight quarters of inflows and pulled in $3.1 billion during the year’s second quarter. Morningstar said in the blog that the fund has raked in over $7.5 billion over the past 12 months.