AUM in sustainable funds grew to over $4 trillion

Assets under management (AUM) in sustainable funds reached a new high of $4.24 trillion by June 2026. This represents a 4.8% increase compared to December 2025, primarily driven by fund performance. However, sustainable funds now account for 6.1% of total global AUM, a decrease from the peak of 7.2% recorded in December 2023. This decline in relative market share reflects consistently stronger net inflows into traditional funds over the same period.

Sustainable funds outperformed traditional peers

In the first half of 2026, the median return for sustainable funds was +4.9%, outperforming traditional funds which recorded a +4.0% return. A significant driver of this outperformance was a greater exposure to equities. The median sustainable equity fund returned +9.0%, slightly ahead of the +8.6% achieved by traditional peers. This performance helped offset weaker results in fixed income, where sustainable funds saw a median return of -1.3% compared to +1.3% for traditional fixed income funds.

Inflows to sustainable funds in 1H 2026

Sustainable funds attracted $37.7 billion in net inflows during the first half of 2026, equating to +0.9% of prior year-end AUM. Momentum was notably stronger in the first quarter, reaching $33.5 billion, but slowed significantly to just $4.2 billion in the second quarter. Despite the positive flows, traditional funds continued to outpace sustainable products, recording inflows of +2.5% of their prior year-end AUM. Regional trends were mixed; Europe-domiciled funds drove inflows, while Asia recorded outflows in both quarters.

Article 9 funds stable in 1H 2026

Article 9 funds, classified under the European Union’s Sustainable Finance Disclosure Regulation (SFDR), showed signs of stability with small inflows of $0.8 billion in the second quarter of 2026. This followed a ten-quarter streak of outflows. Meanwhile, Article 8 funds saw substantial inflows of $242.2 billion during the half-year period. However, most of these flows were directed towards Article 8 funds classified as traditional by Morningstar, with sustainable Article 8 funds accounting for $45.8 billion of the total.

Strong equity fund performance drove overall sustainable fund outperformance

Asset allocation was a key factor in the relative success of sustainable funds. These funds typically maintain a higher weighting to equities, at 56% of the universe compared to 41% for traditional funds. In the first half of 2026, equities were the best-performing asset class. Within fixed income, sustainable funds struggled due to geographical exposure; 80% of sustainable fixed income funds are concentrated in Global and Europe investment areas, regions which recorded negative median returns, whereas only 39% of traditional peers share this concentration.

Sustainable funds outperformed in all geographies in 1H 2026

Sustainable funds achieved stronger median returns than traditional peers across all four major investment regions. The strongest outperformance was observed in the Americas and APAC investment areas, where sustainable funds returned +8.8% and +11.6% respectively. This contrasts with previous periods where heavy exposure to Global and Europe investment areas—comprising 69% of the sustainable fund universe—often led to relative underperformance.

Long-term returns and downside deviation

Long-term analysis indicates that a hypothetical $100 investment in a sustainable fund in December 2018 would have grown to $171 by June 2026, assuming median returns. This compares favourably to $159 for a traditional fund. Additionally, sustainable equity funds demonstrated lower downside deviation in the first half of 2026 at -9.5%, compared to -10.3% for traditional equity funds. This suggests that traditional funds carried a greater potential for relative losses against the S&P 500 benchmark during this period.

72% of sustainable funds had positive returns in 1H 2026

A higher proportion of sustainable funds achieved positive returns in the first half of 2026, with 72% reaching this milestone compared to 67% of traditional funds. The distribution of returns for both fund types shows a wide range of outcomes, which justifies the use of median returns rather than simple averages. Medians are considered more representative of the likelihood of an individual investor selecting a fund that achieves a specific return, as they are less influenced by extreme performance outliers.

Analysing performance for Europe-domiciled funds

Europe-domiciled sustainable funds outperformed traditional peers in 1H 2026, delivering median returns of +3.9% against +1.8% for traditional funds. Within the SFDR classifications, Article 9 funds recorded median returns of +4.0%, while Article 8 funds generated +2.2%. Approximately 13% of total Europe-domiciled AUM is classified as sustainable by Morningstar, which includes all Article 9 funds and 11% of Article 8 funds.

Restriction screening over time

Restriction screens remain a significant feature of sustainable investing, particularly in Europe. Europe-domiciled funds are far more likely to apply restrictions, with 68.8% of AUM screening for controversial weapons compared to just 0.9% in North America. Globally, the most common screens applied include controversial weapons (18.7% of AUM), thermal coal (14.8%), and tobacco (13.9%). While some defence-related screens decreased slightly in 1H 2026, environmental screens for fossil fuels and thermal coal saw modest increases.