Sustainable Bottom Line: A common thread across the ten worst performing funds is exposure to small-cap and mid-cap stocks, segments that were challenged in 2025.
Notes of Explanation: 10 worst performing funds listed include worst performing share class in cases of mutual funds with multiple share classes. Funds include mutual funds and ETFs that, at minimum, have been in operation since the start of 2025. Sources: Morningstar, Sustainable Research and Analysis LLC.
Observations:
• The ten worst performing focused sustainable long-term funds in 2025 through the end of November include seven actively managed mutual funds and three index tracking ETFs. These ten funds posted an average year-to-date return of -2.61% to November 30,, 2025 (including only the worst performing share class in the case of mutual funds with multiple share classes), with results ranging from a low of -16.6% registered by the $116.6 million KraneShares California Carbon Allowance ETF to a high of 1.97% recorded by the $118.5 million Quantified Common Ground Investor Fund. This compares to an average gain of 15.2% through the end of November recorded by all focused sustainable long-term mutual funds and ETFs (excluding money market funds).
• With one exception, the dominant approach to sustainable investing employed by the 10 funds is ESG integration. But most funds go beyond ESG integration, engaging, to varying degrees, in values-based investing, screening as well as exclusions, and, to a limited extent, impact-based investing. Funds advised by Boston Trust Walden Inc (Boston Trust Walden Company) and Calvert Research and Management (Morgan Stanley) also engage in active ownership strategies.
• A common thread across the group of the ten worst performing funds is small-cap and small to mid-cap sized (SMID-cap) equity exposure, segments that were challenged in 2025 as higher interest rates and investor preferences for scale and balance-sheet strength favored larger-capitalization stocks. Elevated volatility further amplified downside capture during the year. Importantly, however, the scatter plot above shows that while all ten rank among the weakest performers in 2025, all but one fund generated positive lower to mid-single digit returns to strong single digit annualized returns relative to their relevant benchmarks over the past three years. The data suggest that 2025 has been a style-driven setback due to cyclical market dynamics and underscoring the importance of evaluating performance across full market cycles rather than single-year snapshots. The underperformance of the S&P 600 SmallCap 600 ESG Index (1.5%) versus its conventional small cap counterpart (6.0%) indicates some drag due to sustainable investing considerations. Constituent exclusions, altered sector weights, factor exposure differences, ESG data considerations and rebalancing mechanics are contributing factors. But while the exact contribution of each factor will vary with market conditions, the structural effects of screening and selection rules are the dominant drivers of persistent performance differences.
• Another common characteristic is that the average expense ratio of the ten funds, at 1.16%, is higher than the average expense ratio of focused sustainable U.S. equity funds (0.77%). Two notable exceptions are the SPDR S&P SmallCap 600 ESG ETF with an expense ratio of 12 basis points (bps) and the Nuveen ESG Mid-Cap Growth ETF with an expense ratio of 31 bps.
• The KraneShares California Carbon Allowance ETF that invests in California carbon allowance futures is a notable outlier that exhibited both weak YTD and muted three-year returns. The fund highlights the additional risks associated with narrow thematic or policy-sensitive strategies associated with carbon market strategies.
