Sustainable Investing Monitor-January 2026

Long-Term Net Assets: Focused Sustainable Mutual Funds and ETFs 

The total net assets of focused sustainable long-term funds attributable to mutual funds and ETFs (excluding money market funds), based on Morningstar classifications, experienced a decline in December and closed the month and calendar year with $374.6 billion in assets across a combined total of 1,175 funds/share classes representing 321 mutual funds (updated) and 197 ETFs.  This reflects a $3.2 billion decline in assets, or -0.8%, against a backdrop of a narrow 0.37% average total return gain during the month of December.      

December’s decline in net assets under management reflected a second consecutive monthly decline, following six consecutive monthly gains.  These December declines were attributable to net fund outflows of about $4.6 billion.       

Using a simple back of the envelope calculation, mutual funds in December experienced net outflows estimated at $5.1 billion while ETFs experienced net inflows estimated at $0.33 billion.      

Over calendar year 2025, combined assets under management increased by $21.3 billion, or 6.0%. The increase was entirely attributable to investment gains posted by mutual funds and ETFs, that added an average of 14.7% and 20.6%, respectively, in 2025.  That said, mutual fund assets declined by $1.4 billion while ETFs were entirely responsible for the overall gains by adding $22.7 billion in net assets. Using a simple back of the envelope calculation, mutual funds experienced estimated outflows in the amount of $37 billion while ETFs experienced narrow outflows in the amount of $0.45 billion.

New Sustainable Fund Launches

There were no new fund launches in December. In 2025, there were ten new launches, matching the number from 2024 and following a total of 68 in 2023. This count does not include any newly created mutual fund share classes.  Of the ten new listings this year, six were ETFs and four were mutual funds. The drop-off in new listings continues to reflect the dramatic slowdown in new focused sustainable fund offerings, starting in mid-2023 to-date.

Also in December, there were a number of fund liquidations and re-brandings, including the Kotak India Equity Fund that dropped its ESG mandate, the BlackRock Sustainable High Yield Fund which liquidated, the Humankind US Stock ETF and Touchstone Climate Transition ETF which were both liquidated as well as the Virtus Global Allocation Fund that dropped its explicit mandate to consider ESG factors.   

Green, Social and Sustainability Bonds Issuance (to September 30, 2025)  

Data covering sustainable debt offerings for the entire calendar year and Q4 2025 has still not been finalized.     

According to preliminary data published by Environmental Finance, sustainable bond and loan volumes are estimated to have fallen by a fifth to around $1.6 trillion in 2025.  It is further estimated that final sustainable debt volumes for 2025 will be between $1.63 trillion and $1.66 trillion, down from the record $2.03 trillion recorded in 2024. This includes any transactions labelled as green, social, sustainability, sustainability-linked or transition bonds and loans as well as sub-labels such as blue, gender, and nature debt.  Sustainable bond volumes are expected to be between $848 billion and $871 billion, with sustainable loan volumes between $782 billion and $793 billion.   

The chart displayed above covers the period to September 30, 2025, and is sourced to SIFMA.  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).     

Short-Term Relative Performance: Selected Sustainable Indices vs. Conventional Indices

Market overview.  In 2025, all major asset classes delivered positive returns for the first time since the pandemic, despite pronounced volatility early in the year driven by trade tensions and tariffs; U.S. equities rebounded sharply, with the S&P 500 finishing up 17.9% (total return), propelled by a narrow group of AI-linked mega-caps, rich valuations, and strong second-half momentum tied to fiscal and monetary stimulus, while sector leadership favored Communication Services and Technology.   Mid cap and smaller-cap stocks lagged. Bonds recorded their best year in five, with the Bloomberg U.S. Aggregate Bond Index up 7.3% as the Federal Reserve cut rates and yields declined, and credit markets remained resilient. International equities materially outperformed U.S. markets, aided by a roughly 12% decline in the U.S. dollar, with developed and emerging markets both posting gains above 30%. Focused sustainable mutual funds and ETFs also performed strongly, averaging a 15.7% return across more than 1,100 funds, extending a robust three-year performance streak across U.S. equity, international equity, and taxable bond segments.

Near-term results posted by selected sustainable indices. Just two of six MSCI sustainable indices, 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, outperformed their conventional counterparts in December.  These included both US market focused indices, the MSCI USA Selection Index and the MSCI Small Cap Selection Index that outperformed their conventional counterparts by 91 basis points (bps) and 20 bps, respectively. The MSCI USA Selection Index eclipsed its conventional MSCI USA Index counterpart for the year by posting a 1.5% excess return.  This was not the case for the benchmark tracking small cap companies that lagged for the year by 4.05%. The three international indices, however, the MSCI ACWI ex USA Selection Index, the MSCI EAFE Selection Index and the MSCI Emerging Market Selection Index each trailed its conventional counterpart in December by 74 bps, 65 bps and 96 bps, respectively. For the year, only the MSCI Emerging Market Selection Index managed to outperform, delivering a 1.22% differential in 2025.  At the same time, the Bloomberg MSCI US Aggregate ESG Focus Index produced results in line with its conventional benchmark, the Bloomberg US Aggregate Bond Index. But for the year, the sustainable benchmark exceeded its conventional counterpart by a narrow 4 bps.    

Intermediate-to-long term results posted by sustainable indices.  The MSCI USA Selection Index is the only one of the five stock-oriented benchmarks that continues to post consistent outperformance over the three-, five- and ten-year intervals to the end of December.  The sustainable benchmark has beaten its counterpart conventional yardstick in six of the last ten years.  A close second is the MSCI Emerging Market Index, having outperformed the MSCI Emerging Markets Index over the last three as well as ten years while the 3-year negative differential of 6 bps is very narrow.  At the same time, the MSCI Small Cap Select Leaders Index, the MSCI ACWI ex USA Select Index and the MSCI EAFE Select Index are lagging over the 3-, 5-and 10-year time intervals through the end of 2025. By way of illustration, these three Selection indices translate into cumulative 3-year (to December 2025) tradeoffs ranging from $31 per $1,000 invested in the MSCI ACWI ex USA Selection Index to $96 per $1,000 invested in the MSCI Small Cap Select Index.  

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 interval 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.