Below 1,000: Sustainable Funds Slide Into Niche Territory

Since 2023, a total of 555 funds/share classes and ETFs have been liquidated, rebranded or merged
The trajectory is stark. At the end of 2023, there were 1,552 long-term sustainable funds, share classes and ETFs on the market, based on data from Morningstar. By the end of 2024, that number had fallen to 1,383. By the end of 2025, it stood at 1,176. Now, seven months into 2026, the number has dropped to 997, a decline of more than a third since 2023, and a loss of roughly 180 funds/share classes in 2026 alone. Notably, the July count still includes a number of BlackRock’s LifePath ESG target-date suite of funds, some 30 share classes across ten vintages that are currently in the process of liquidating based on a decision made by the Board of Trustees on June 11, 2026 to liquidate the funds. Once that wind-down is complete, the total number of listed funds will fall further still.

At the present time, the 997 funds/share classes consist of 815 mutual funds/share classes which compress to roughly 300 mutual funds with $238 billion in assets under management. This represents a decline of 476 funds/share classes since the end of 2023. The remainder is made up of 182 ETFs, an expanding segment in terms of assets under management that gained some $54 billion since 2023 as investors gravitated to ETFs to benefit from their lower index fund costs, tax advantages and flexibility. Still, the ETF segment has also experienced a decline in the number of listed investment products, shedding 79 funds since the end of 2023. The combined loss of 555 funds/share classes has left sustainable investors with a reduced number of investment strategy options, a declining number of sustainable investing approaches as well as fewer investment management company options.

Developments that have driven the decline in the number of labeled funds
The following developments have been the driving forces behind the decline. (1) Asset managers have spent the past two years rationalizing crowded, sub-scale sustainable lineups built during the 2019–2021 launch boom, liquidating, merging, or rebranding funds that never gathered meaningful assets.  BlackRock’s LifePath ESG closure is simply the latest example. (2) A dramatic expansion in the number and variety of labeled sustainable investing mutual funds and ETFs along with a proliferation in the number of firms offering such products came about in the absence of widely accepted definitions and lack of clear criteria for what constitutes a “sustainable” or ESG investment fund. A disclosure gap along with mixed to poor investment performance results that upended expectations, all contributed to confusion and misunderstanding regarding sustainable investing on the part of retail investors that persisted in the absence of a regulatory framework to inform and protect investors(@). In the end, these factors tempered investor enthusiasm for sustainable investing and flows into the category, except for climate-oriented funds and faith-based funds, turned negative to weak for several years. (3) The political and regulatory backlash against ESG investing that began in 2022 pushed some firms to quietly drop “ESG” or “sustainable” branding from fund names and strategies even without materially changing what the funds do, moving them out of any sustainable-fund count without necessarily closing them, and (4) The implementation of the SEC’s fund-naming rule added further pressure on firms to either commit more formally to sustainable mandates or abandon the label altogether.

What does a drop below 1,000 mean for the sector?
A drop below 1,000 funds/share classes does not mean that sustainable investing is disappearing, since assets remain meaningfully invested in the funds that are left, and a core group of committed providers (ranging from BlackRock to Vanguard and Fidelity, Calvert, Nuveen, Domini, Parnassus, Impax, Brown Advisory, Trillium and others) continues to run dedicated sustainable strategies across asset classes. But the count tells its own story. At its peak, “sustainable” or “ESG” was treated by much of the industry as a mainstream growth category, with hundreds of new funds launched in a span of a few years. That era is over for now. What’s left may well look like the socially responsible funds segment that existed before the latest boom years during and much more like any other specialized corner of the fund business: a smaller, more durable set of strategies serving a committed base of investors and advisors, rather than a rapidly expanding mainstream category. Simply put, the labeled sustainable fund business may be reverting to a niche sector level.

Where it goes from here is likely more of the same, at least in the near term
The LifePath ESG liquidation alone will shave dozens more share classes off the count before the year is out, and further pruning of underperforming or sub-scale funds elsewhere in the labeled sustainable funds category seems probable. But while the number may well keep falling toward a smaller, steadier core, it is not expected to vanish. This decline is unfolding while at the same time, the broader sustainable investments sector, one that extends beyond mutual funds and ETFs and is dominated by investment management firms employing various ESG integration approaches, remains larger by a factor of 154, at $61.7 trillion as of 2024 according to US SIF. These investment management firms, whose goal is to weigh financially material environmental, social, and governance factors, are increasingly disclosing their strategies in stewardship reports that also offer insights into each firm’s engagement and proxy voting practices. According to stewardship and/or related reports published by the top 50 asset management firms in the US, based on research conducted by Sustainable Research and Analysis, at least 40 firms, including firms like BlackRock, Federated Hermes, AllianceBernstein and Nuveen, to mention just a leading few, offer a clear disclosure policy regarding ESG integration across at least one major asset class/mandate type (20 firms) while the rest provide detailed to comprehensive differentiated disclosure across multiple asset classes/mandate types (e.g., active vs. index, equity vs. fixed income vs. alternatives), including explicit scope limits. Such disclosures would not only apply to mutual fund and ETF assets under management but also to separate accounts managed on behalf of institutional investors, insurance companies, endowments, foundations and family offices, to mention just a few. For the largest segment of sustainable investors, those attracted to ESG integration that, according to US SIF, is the most widely used approach by investors, accounting for 77% of investors (vs 72% for negative screening, 61% for impact investing and 60% for sustainability themed investing), this level of transparency expands the number of investment options beyond labeled funds to include conventional funds and investment strategies offered by the same firms.

(#) According to the ICI, ESG investing fund assets were $674.4 billion at the end of June 2026. 
(@) The SEC withdrew its 2022 proposed rule regarding “Enhanced Disclosure by Certain Investment Advisors and Investment Companies About Environmental, Social and Governance Investment Practices.