Sustainable Bottom Line: Focused sustainable international equity funds across nine investment categories, 278 funds/share classes and ETFs with $67.0 billion, delivered a strong 2025 rebound.
Notes of Explanation: Categories arrayed by 1-year average returns. Returns for 1-year period are average annual while returns for 3- and 5-years are average annualized returns. Foreign Small/Mid Value category excluded as the one fund in the investment category was not in operation for the full calendar year. Sources: Morningstar and Sustainable Research and Analysis LLC.
International markets were the standout on a relative and absolute basis in 2025
A volatile year, 2025 was also the first year since the pandemic when all major asset classes delivered positive and, in some cases, above average returns. International markets were the standout on a relative basis in 2025, aided materially by currency. The MSCI ACWI ex USA Index returned 32.39% while the MSCI EAFE Index added 31.22% in in 2025, far outpacing U.S. large caps. Emerging markets were similarly strong if not stronger with the MSCI Emerging Markets Index gaining 33.57%. A weaker U.S. dollar was a meaningful tailwind for U.S.-based investors in foreign assets with the US dollar recording a roughly 12% decline during 2025 amid global turbulence.
Focused sustainable international equity funds in 2025
Focused sustainable international equity funds, a segment consisting of nine investment categories with funds in operation over the full year, some 278 funds/share classes and ETFs with $67.0 billion in net assets, delivered a strong rebound in 2025, marking one of their most robust calendar-year performances in recent memory. Across the universe, average returns exceeded 22%, reflecting improving global equity conditions, easing inflation pressures, and a partial reversal of the prolonged valuation discount applied to non-U.S. markets. While the headline performance was compelling, outcomes varied meaningfully across investment categories, and interpretation at the category levels requires attention to category breadth and fund representation.
Value-oriented and diversified strategies emerged as the most reliable drivers of performance
Global Large-Stock Value funds led all categories with average gains approaching 40%, benefiting from cyclical sector exposure, improved earnings expectations, and valuation normalization across developed markets. Diversified Emerging Markets strategies also posted strong results, with returns exceeding 30%, supported by selective currency stabilization, commodity-linked exposure, and improving sentiment toward several large emerging economies outside China. These categories are supported by multiple funds and meaningful asset bases, making their results both statistically and economically significant.
Core developed-market strategies also participated meaningfully in the rebound
Foreign Large Blend and Global Large-Stock Blend categories generated solid double-digit to high-20s returns, reflecting broad-based equity market strength across Europe, Japan, and other developed markets. These categories account for a substantial share of total assets in the dataset, suggesting that most investors in sustainable international equities benefited from the 2025 recovery.
Several categories that appear to lag require careful qualification due to extremely limited representation
The China-focused category, often cited as a relative underperformer, consists of a single fund, and one that is heavily oriented toward the technology sector. As such, its performance reflects fund-specific sector concentration and regulatory exposure, rather than the broader opportunity set for China or Asia-focused sustainable investing. While the fund posted positive returns in 2025, its weaker three- and five-year averages are better interpreted as the outcome of prolonged stress in Chinese technology equities than as evidence of persistent structural underperformance across China-focused sustainable strategies more broadly.
A similar caveat applies to the Foreign Small/Mid Growth category which is also represented by only one fund. Small- and mid-capitalization international equities tend to exhibit higher volatility and dispersion even in well-populated universes; with a sample size of one, these results should be viewed as illustrative case studies rather than representative category trends. Consequently, conclusions about sustained underperformance in international small- and mid-cap sustainable strategies would be premature based on this dataset alone.
Longer-term performance remains mixed across the universe
While three-year average returns have improved into the low-to-mid-teens for several categories, five-year averages remain modest, often in the mid-single digits and, in some cases, negative. This reflects the cumulative impact of a prolonged period in which international equities—sustainable and conventional alike—lagged U.S. markets. The strong showing in 2025 meaningfully improved trailing returns but has not yet erased the intermediate-term gap.
Costs and dispersion remain important considerations
Average expense ratios cluster near 1%, with higher costs observed in emerging markets and small-cap strategies. The fund-level data show substantial dispersion within categories, underscoring that manager selection, regional exposure, and sector tilts have been as important as category allocation in determining outcomes.
Conclusion
The performance of focused sustainable international equity funds in 2025 represents a meaningful cyclical recovery, particularly for value-oriented and diversified strategies with broad market exposure. However, results from narrowly populated categories—such as China-focused and international small-/mid-cap segments—should not be interpreted as definitive category signals. For sustainable investors allocating internationally, the data reinforces two key lessons: first, that international equities can deliver strong performance when macro and valuation conditions align; and second, that selectivity and diversification remain critical, especially in niche segments where individual fund characteristics dominate outcomes.
