Global sustainable open end and exchange-traded funds ( ETFs ) saw an estimated US$27 billion net outflows in Q4 2025, compared with almost US$55 billion outflows in the previous quarter, according to a recent report.

Redemptions by large UK institutional investors – reallocating from pooled environmental, social and governance ( ESG ) funds into bespoke ESG mandates – accounted for much of the outflows in both quarters, finds Morningstar’s Q4 2025 Global Sustainable Fund Review.

Yet the broader backdrop remained challenging, the report notes, with the Asia ex-Japan region posting US$1.4 billion in net outflows in fourth-quarter 2025, marking the third quarterly outflows in two years.

For the whole of 2025, global sustainable funds saw US$84 billion in net outflows which is a sharp reversal from the US$38 billion in inflows recorded in 2024.

Key global takeaways from the report include:

• Sustainable funds in Europe posted net withdrawals of US$20 billion in the fourth quarter, following the exceptionally large US$49.6 billion in redemptions in the previous quarter. 
• Sustainable funds in the United States saw net outflows for the 13th consecutive quarter, totalling US$4.6 billion in the fourth quarter of 2025. 
• Despite the outflows, global sustainable fund assets rose by about 4% in the fourth quarter to US$3.9 trillion, supported by stock market appreciation. Since the end of 2018, global sustainable fund assets have grown more than sixfold from roughly US$600 billion.
• Product development remained subdued in the last three months, with 40 new sustainable funds launched globally.

Key Asia-Pacific takeaways include:

Japan

• In the fourth quarter of 2025, Japanese sustainable funds extended their prolonged period of investor retrenchment, recording a 14th-consecutive quarter of net outflows.
• Next Funds MSCI Global Climate 500 Japan Selection Index ETF shifted from being the largest contributor to net inflows in the third quarter to the largest detractor in the fourth quarter, with net outflows of approximately US$483 million.
• Japan recorded no new sustainable fund launches in Q4 2025 – a continuing trend since Q1 2025.

Asia ex-Japan

• South Korea led the withdrawals with US$1.6 billion in outflows, while Taiwan registered US$300 million in outflows, its first negative quarter since third-quarter 2023.
• Thailand remained a bright spot, attracting US$452 million in inflows, supported by Thai ESG sovereign bond funds, such as KKP Government Bond Thailand ESG and Bualuang Sovereign Instruments Thailand ESG.
• China-domiciled sustainable funds recorded US$2.2 billion of outflows in the third quarter of 2025 ( Q4 flow data was not available at the time of writing ), their largest quarterly loss since the second quarter of 2022. The biggest single fund outflow came from Penghua Carbon Neutralization Thematic Mixed Fund.
• 54 new funds were launched in Asia ex-Japan, slightly above 2024, but well below peak volume in 2021-2023, when annual launches averaged nearly 100.

“The ESG fund flow picture doesn’t look good, but the figures are somewhat skewed by large European institutional investors reallocating assets from pooled ESG funds into custom ESG mandates,” explains Hortense Bioy, Morningstar Sustainalytics’ head of sustainable investing research. “Nonetheless, the wider environment remains challenging, as persistent headwinds, including geopolitical tensions, the ESG backlash, regulatory backpedalling and mixed performance, continue to weigh on investor appetite.”