Sustainable Bottom Line: Investors remain positive on environmental mutual funds and ETFs, a category that has consistently experienced net inflows over the last six years.
Notes of Explanation: Refer to ICI Research definitions. Sources: ICI Research, Sustainable Research and Analysis LLC.
Observations:
• According to data published by ICI Research (ICI), funds that invest according to ESG criteria, defined below, gained a net of $11.6 billion during January 2026 due to capital appreciation, to end the month at $629 billion even as ESG funds sustained net outflows of $935 million. January’s outflows fell below the average monthly outflows of $1,622 million recorded in 2025.
• Mutual funds and ETFs managed according to ICI’s ESG criteria experienced net outflows during the previous three calendar years, yet net assets still managed to reach their highest level at the end of January—a period of 85 months since the launch of the ICI’s time series. February’s almost 1% price drop in the return of the S&P 500 index will likely add up to a decline in reported net assets during the month of February 2026, barring a turnaround in fund flows.
• Of the four ESG identified groups tracked by ICI based on the frameworks or guidelines expressed in the principal investment strategies sections in fund prospectuses, including Broad ESG Focus, Environmental Focus, Religious Values Focus and Other Focus, funds with an Environmental Focus retained the favor of investors and realized positive flows during the three-year interval. Environmental Focused funds gained a cumulative total of $24.3 billion while the three other categories suffered drawdowns, led by Broad ESG Focus funds that gave up $32.1 billion. In the process, Environmental Focus funds, which accounted for just 4% of funds managed according to ESG criteria in January 2021, expanded significantly to reach 13% of assets at the end of January. This share expansion was at the expense of each of the other three categories. A clear and compelling environmental mandate set out in fund prospectuses and related documentation, on top of investor concerns and opportunities around global warming may be a contributing factor.
• When compared to Morningstar’s Socially Responsible ESG assets which ended in January at $387.7 billion (including money market funds), ICI’s mutual fund and ETF assets are 1.6X higher.
ICI Definitions
ICI Research examines the prospectuses of funds to classify those that invest according to ESG criteria using the same approach that it does for other categories across all funds. In particular, ICI looks for language indicating that a fund places an important and explicit emphasis on environmental, social, or governance criteria to achieve certain goals.
ICI classifies ESG-criteria funds into groups based on the frameworks or guidelines expressed at the forefront of their principal investment strategies that appear in sections of fund prospectuses.
–Broad ESG focus: These funds focus broadly on ESG matters. They consider all three elements of ESG (rather than focusing on one or two of the considerations) or may include ESG in their names. Index funds in this group may track a socially responsible index such as the MSCI KLD 400 Social Index.
–Environmental focus: These funds focus more narrowly on environmental matters. They may include terms such as alternative energy, climate change, clean energy, environmental solutions, or low carbon in their principal investment strategies or fund names.
–Religious values focus: These funds invest in accordance with specific religious values.
–Other focus: These funds focus more narrowly on some combination of environmental, social, and/or governance elements, but not all three. They often negatively screen to eliminate certain types of investments.
