The total net assets of focused sustainable long-term funds, including mutual funds and ETFs (excluding money market funds), based on Morningstar classifications, dropped by $25 billion in March to end the first quarter of 2026 with a combined total of $358.3 billion. This was across a combined total of 541 funds/1103 funds/share classes, representing 349 mutual funds/911 funds/share classes and 192 ETFs, reflecting another monthly decline in the number of funds/share classes versus February from 947 funds/share classes and 193 ETFs—largely attributable to the rebranding of the Putnam Sustainable Retirement Funds, a series of target-date funds with $2.9 billion in assets at the end of February designed to provide retirement income through a diversified portfolio that prioritizes positive ESG (environmental, social, and governance) criteria. Mutual fund net assets dropped to $225.1 billion while ETFs closed the month at $133.2 billion.
Following gains recorded during the first two months of the year, the drop in assets reflected the impacts of both market depreciation (focused sustainable long-term funds gave up 5.1% in March), net outflows and fund closures. Using a back of the envelope calculation, both long-term mutual funds and ETFs experienced cash outflows totaling an estimated $5.3 billion, with mutual funds accounting for $3.2 billion or 60% of the total. ETFs gave up and estimated $1.9 billion.
Estimated net outflows picked up momentum in March, resulting in first quarter net outflows in the amount of $11.4 billion. That said, according to ICI Research, environmentally focused funds continue to benefit from inflows. This is also the case in February for Religious Values Focus funds. ICI Research data tracks mutual funds and ETFs that invest according to ESG criteria based on a broader set of definitions, reporting that assets of ESG funds, a total of 729 investment vehicles, reached $631.0 billion at the end of February, the latest month for which data is available.
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New Focused Sustainable Fund Launches: 2025 – 3/31/2026 
There were no new focused sustainable fund launches recorded in March 2026, based on Morningstar reporting, which was also the case over the previous two months and the same period in 2025. The drop-off in new listings continues to reflect the dramatic slowdown in new focused or labeled long-term sustainable fund offerings, starting in mid-2023 to-date, coincident with a political backlash against ESG investing and potentially some diminishing level of response to ESG-labeled fund products.That said, Morningstar excludes most faith-based funds from its universe of sustainable investing funds—a segment consisting of 202 funds with $183.5 billion in assets that is included in the ICI Research data as of the end of February. And on this front, on March 19, 2026, Faith Investor Services (FIS) announced the launch of three new actively managed faith-based ETFs, offering investors options that align with faith-based values. Consisting of two fixed income funds and one equity fund, these investment vehicles expand the universe of focused sustainable long-term mutual funds that, according to many practitioners qualify as sustainable investing funds. These are funds that employ approaches ranging from values-based investing, including faith-based funds, screening and exclusionary approaches, impact investing, thematic investing, ESG integration, engagement, advocacy and proxy voting as well as structural sustainability. |
According to SIFMA, global debt (including green, social and sustainability bonds) issuance reached $233.0 billion versus $167.7 issued during the fourth quarter of 2025, a gain of $65.3 billion or 39%. This also represents the highest quarterly issuance level since the first quarter of 2025 when $241.4 billion in sustainable bonds were issued. Measured against that level, sustainable debt instruments recorded a year-over-year decline of $8.4 billion, or 3.5%.
The recorded global gain stood in contrast to volume statistics in the US, which experienced a $6.7 billion decline to $23.3 billion in the first quarter, or a 22.2% drop. This was the lowest quarterly volume since the fourth quarter of 2022 when $10.7 billion in sustainable debt was issued. It also reflected a significant drop from the $57.0 billion in issuance recorded in the first quarter of 2025, a decline of $33.7 billion or 59.1%. The fall-off in the US, which challenged gains of 13.7% and 10.3% achieved in long-term US fixed income bond issuance, may have been linked to declines in the origination of sustainability and social bonds.
Globally, green bonds accounted for 64.1% of issuances in the first quarter while in the US, green bonds accounted for 44.4% of listings. Globally, sustainability and social bonds accounted for 18.3% and 17.6% of issuances, respectively, whereas higher percentages of 29.5% and 26.2%, respectively, were registered in the US.
It should be noted that SIFMA’s data does not include sustainability linked bonds, sustainability linked notes, transition bonds and loans that are now tracked and now account for almost 50% of the sustainable debt market. (Note: Prior period quarterly data reflect any latest adjustments). |
Markets in Review. US military operations against Iran, starting on February 28, produced an oil shock that saw oil prices move up to over $100 a barrel, which triggered a surge in energy prices, reignited near-term inflation concerns, drove Treasury yields moved higher, and caused a broad, correlated selloff across risk assets. That said, these and other concerns seemed to be cast aside at the very end of Q1 as “buy the dip” fervor took over. It continued into April.
U.S Equities. Brent crude registered its strongest monthly gain since the 1970s, rising 63% in March. The S&P 500, which hesitated during the first four days of March, gave up 5.0% for the month and recorded a decline of 4.3% for the quarter. At the same time, the Dow Jones Industrial Average and NASDAQ Composite dropped 5.2% and 4.7% in March and 3.2% and 7.0% over the quarter, respectively. The S&P 400 mid cap index declined by 5.4% while the small cap S&P 600 Index experienced a more limited decline of 4.1%. Value stocks outperformed growth stocks across the range of market capitalizations, but both growth and value moved lower, underscoring that the selloff was driven by macro de-risking rather than style rotation. Energy was the standout sector in March, rising between 9.1% and 10.7%.
International Equities. Developed non-US equities, as measured by the MSCI EAFE, fell 10.3% in March alone. For the month and full quarter, the MSCI ACWI ex USA Index returned –10.7% and -0.71%, respectively, trailing in March by almost 6% but outperforming the S&P 500’s -4.4% in the quarter. In the equity market more broadly, the rotation away from mega-cap tech names earlier in Q1 helped value stocks (+1.3%) beat growth stocks (-8.4%), while emerging market equities held relatively flat at -0.1% for the quarter. European markets, which had entered 2026 with strong momentum from fiscal stimulus and defense spending themes, were hit hard in March by their greater exposure to elevated energy costs. Bonds. The Bloomberg US Aggregate Bond Index returned almost -1.8% in March and -0.05% for the quarter, while corporate bonds returned -0.5%. The US high yield market (-0.5%) outperformed its European equivalent (-1.7%), and global investment grade bonds returned -1.3% in Q1. UK Gilts were the laggard among sovereigns, falling 2.0% for the quarter. The 10-year Treasury yield rose by 33 basis points in March to 4.30% after hitting 4.44% a few days earlier, as bonds were pressured by reduced rate-cut expectations. The Federal Reserve held the federal funds rate at 3.50–3.75%, with Chair Powell acknowledging stalled inflation progress.
Focused sustainable L-T mutual funds and ETFs. Against this backdrop, positive returns were extraordinarily scarce across the universe of 541 mutual funds and ETFs/1,103 funds/share classes consisting of focused or labelled sustainable long-term funds as classified by Morningstar, accounting for just 2% of the funds. All fund categories experienced average declines in March, including sector funds that posted an average decline of 4.82% even while trailing 12-month returns were up an average of almost 45% on the strength of outstanding performance by clean and renewable energy funds. Long-term funds recorded an average drop of 5.13% in March and 1.28% in the first quarter. Taxable bond funds, US equity funds and international funds posted average declines in March of -1.60%, 5.35% and 8.56%, respectively, and -0.39%, -3.42% and -0.52% for the quarter. Structurally, funds with low or no exposure to fossil fuels were penalized during a quarter in which energy was by far the top-performing sector. Short-term performance results posted by selected sustainable indices. A narrow improvement over the last two months, two of six selected MSCI sustainable indices outperformed their conventional counterparts. The indices have been chosen to represent a broad cross section of sustainable investing market segments using ESG criteria and exclusions while maintaining sector weight exposures corresponding to counterpart conventional indices.
The two outperforming indices, both with an international focus, are the MSCI ACWI ex USA Selection index and the MSCI Emerging Markets Selection Index that outperformed their conventional counterparts by 0.29% and 1.78%, respectively. The same indices, however, fell behind their conventional counterparts over the first quarter and trailing twelve months. In fact, all but the MSCI USA Selection Index, which eclipsed its conventional MSCI USA Index over the trailing twelve months, underperformed in the first quarter and trailing twelve months.
At the same time, the Bloomberg MSCI US Aggregate ESG Focus Index continued to post results consistently in line with its conventional benchmark, the Bloomberg US Aggregate Bond Index. It was off by 1 basis point in March, but it matched its conventional counterpart over the three-month interval while exceeding by two bps over the trailing one-year interval.
Intermediate-to-long term results posted by selected sustainable indices (not shown in chart). The MSCI USA Selection Index is the only stock index to post performance results that are largely in line with its MSCI USA counterpart index. For the most part, the three other Select indices are trailing behind their conventional benchmark over the three-, five- and ten-year intervals to the end of March.
With regard to fixed income, the Bloomberg MSCI US Aggregate ESG Focus Index has managed to very closely track the Bloomberg US Aggregate Bond Index over the short-to-intermediate term intervals that it’s been calculated, often times achieving the same results or, if they vary, the results deviate by no more than one to two basis points in either direction. |
