Sustainable Bottom Line: Product breadth remains uneven for sustainable investors interested in creating diversified Exchange Traded Fund portfolios consisting entirely of focused index tracking ETFs.
Notes of Explanation: Sources: Long-term funds exclude money market funds. Morningstar and Sustainable Research and Analysis LLC.
Observations:
• Focused sustainable index tracking funds, both mutual funds and ETFs with $162.9 billion in assets under management as of September 2025, account for 44.3% of the focused sustainable long-term funds segment that reached 367.7 billion at the end of September. This represents an increase from $116.4 billion at the end of 2022 and a 4% uptick from the 40% market share level at that time.
• Index tracking sustainable Long-term ETFs (excluding money market funds) dominate the segment, with 138 funds and $116 billion in assets under management, or 72% of assets. On the other hand, index tracking mutual funds extend to 22 funds, offering 50 share classes with $46.9 billion in assets under management.
• Passively managed ETFs are classified into 38 investment categories, according to Morningstar, but the offerings are concentrated, with many investment categories comprised of a limited number of alternative fund options. Only 12 categories, or just about one-third, offer 4 or more ETF options while 26 categories consist of just one to three funds, reinforcing the opinion that product breadth remains uneven for the visible but still niche segment of sustainable mutual funds and ETFs. Refer to Focused Sustainable funds: Visible but Still a Niche.
• For sustainable investors interested in creating a diversified portfolio using sustainable ETFs or, as an alternative, supplementing conventional portfolios with sustainable ETFs, the good news is that the top 12 categories include at least four potential core equity fund options. These are: U.S. Large Blend funds, Foreign Blend funds, and Diversified Emerging Market funds, and, to a lesser extent but still with four to five offerings, Mid-Cap Blend and Small Blend funds. On the other hand, various bond and thematic fund options are available in limited numbers.
• Large Blend funds make up the largest category, with 26 ETFs and $49.6 billion in assets. Investing primarily in large U.S. companies, specifically those within the top 70% of the U.S. equity market’s capitalization, Large Blend funds, properly qualified, can serve as a core equity holding in diversified portfolios, both conventional and sustainable, or to supplement a core holding in a conventional portfolio to gain some level of exposure to a preferred sustainable strategy. Within this segment, a good representation of ETFs are ones offering U.S. market exposure that mirror the S&P 500 or MSCI USA risk and returns characteristics and keep tracking error low. Typically, these ETFs are constructed around lighter ESG constraints while applying baseline exclusions such as UN Global Compact violations, controversial weapons, tobacco; and often coal/oil sands screens.
