Takeaways

• Global ESG funds saw significant net outflows of $55 billion in Q3 2025, largely driven by UK-based BlackRock redemptions.
• Excluding the BlackRock impact, sustainable funds still saw $7.2 billion in outflows amid market volatility and regulatory uncertainty.
• Fixed income ESG funds were the only asset class to attract net inflows, gaining $12.5 billion globally.

Global sustainable funds endured a challenging third quarter of 2025, registering net outflows of about $55 billion, according to Morningstar’s latest Global Sustainable Fund Flows report. The steep decline was primarily linked to large-scale redemptions from UK-domiciled BlackRock funds, following a client pension fund’s move to shift assets into custom ESG mandates managed by the same firm.

However, when the BlackRock redemptions are excluded, the picture remains subdued. Global ESG funds still saw net outflows of $7.2 billion, reversing the $6.2 billion in inflows recorded in the previous quarter.

“The large headline outflows mask a more nuanced story,” said Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics. “Amid macroeconomic uncertainty, geopolitical volatility, and policy shifts, we are seeing significant reallocations, with large sums moving between strategies within asset management firms and into customized institutional mandates.”

Read More: ESG Rollback in Europe Triggers Investor Legal Strategy Shift

Regional Trends: Mixed Momentum Across Markets

In Asia ex-Japan, sustainable fund assets rose modestly by 2%, reaching $80 billion by the end of Q3 2025. China maintained its lead with a 42% market share, followed by Taiwan (37%) and South Korea (10%). Despite modest asset growth, only three new sustainable funds were launched in the region during the quarter, all China-domiciled passive offerings, marking the lowest level of fund launches since Morningstar began tracking this data in 2021.

Excluding China, Asia ex-Japan recorded $1.6 billion in net inflows, roughly the same as the previous quarter but less than half the volume seen a year earlier.

In Japan, redemptions accelerated, extending a 13-quarter streak of outflows, though total sustainable fund assets remained steady at over $23 billion, supported by market appreciation.

Meanwhile, European ESG funds faced $3.1 billion in net redemptions, reversing from $11.3 billion in inflows in Q2. U.S. sustainable funds also continued their downward trend, recording $5.1 billion in outflows, their 12th consecutive quarter of net withdrawals.

Also Read: ESG Investing Under Fire: Politics, Performance, and Greenwashing

Fixed Income: A Rare Bright Spot

Amid the broader pullback, fixed income ESG funds were the only asset class to attract new money, drawing $12.5 billion in net subscriptions globally.

Looking ahead, experts suggest that investor appetite for ESG funds may continue to be tested. “Investor appetite for ESG funds will continue to be tested by the ongoing ESG backlash and an evolving regulatory landscape,” Bioy added.

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Source: Fund Selector Asia