Sustainable Investing Monitor-July 2026

Long-Term Net Assets of Focused Sustainable Mutual Funds and ETFs: 2025 – 6/30/2026

In June when every major asset class gave back ground or advanced only modestly, in contrast to the broad powerful gains of April and May, dedicated sustainable long-term mutual funds and ETFs gained an average of 0.52% and closed the month at $402.3 billion in net assets, for a net decline of $0.94 billion versus last month’s $403.3 billion.  This was across a universe of labeled or dedicated sustainable mutual funds and ETFs, as classified by Morningstar, consisting of 1,004 funds/share classes, including 823 mutual funds/share classes or a total of 303 individual funds (based on revised data), and 181 ETFs, for a combined total of 484 funds. The number of funds experienced another drop in June, falling by 18 funds (12 mutual funds and 7 ETFs-offset by one new ETF listing in June).      

For only the second time this year, the combined total of assets attributable to sustainable mutual funds and ETFs experienced a monthly decline.  Net assets dropped by $0.94 billion, largely due to capital depreciation attributable to the negative average performance of ETFs (in contrast, mutual funds posted an average gain), net outflows and fund liquidations.  On the other hand, mutual funds, which were up an average of 0.84%, added $1.23 billion in net assets. Using the back of the envelope calculation, long-term mutual funds and ETFs experienced combined net cash outflows estimated at around $3.1 billion. 

Since the start of the year, labeled long-term sustainable mutual funds and ETFs expanded by $27.7 billion compared to a net increase of $5.4 billion during the comparable period in 2025. 

[Note: Total net assets as well as cash flows may be skewed by as much as $1.5 billion due to the potential omission of one $1.6 billion fund, still under investigation]

New Focused Sustainable Fund Launches: 2025 – 6/30/2026

After an eight-month dry spell, one new labeled sustainable fund launch was recorded in June 2026. The $1.4 million index tracking Defiance Autism Impact ETF (ASD), listed on June 1 and offered at 79 basis points, tracks the performance of publicly traded global companies in developed markets that provide products, services and/or research supporting the autism ecosystem comprised of individuals on the autism spectrum and within the broader neurodivergent community.  The newly listed fund brings the year-to-date total fund launches to one fund versus seven funds that were listed during the same interval last year. 

The ongoing scarcity 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, coinciding with a political backlash against ESG investing and potentially some diminishing level of response to ESG-labeled fund products.  Compliance with the SEC’s amended Names Rule that went into effect last month may also be holding back new fund launches and also contributing to fund closures as well as liquidations which reached a total of 10 funds this month (7 ETFs and 3 funds/8 share classes).  This includes the liquidation of seven ESG and sustainable Putnam ETFs (a unit of Franklin Templeton) with a combined total of $69.8 million in assets under management.  Six of the seven funds managed less than $10 million while one fund, the Putnam ESG Ultra Short ETF, managed $35.8 million and accounted for 51% of the total $69.8 million in liquidated assets.

Green, Social and Sustainability Bonds Issuance to 6/30/2026  

According to SIFMA, conventional fixed income issuance in the U.S. decreased slightly in Q2 2026 to $3.2 trillion, or a decline of 1.7% on a quarter-over-quarter basis. Against this backdrop, U.S. sustainable debt (including green, social and sustainability bonds) issuance reached $40.1 billion versus $29.6 billion in Q1, for a Q/Q increase of $10.5 billion, or 35.4%.  Compared to the second quarter of 2025, sustainable debt issuance expanded by $1.8 billion, for an increase of 4.7%.  Sustainability bonds accounted for 52.5% the the issuance volume in the second quarter while green bonds and social bonds made up 40.7% and 6.8%, respectively.  Since the start of the year, issuance of sustainable debt instruments in the U.S. reached $69.6 billion compared to last year’s $95.2 or a drop of 27%.  A straight-line interpolation suggests that 2026 U.S. sustainable debt issuance could end up at around $139.2 billion, which would represent a significant decline of $45.1 billion, or 24%.   

Worldwide, issuance also picked up momentum relative to Q2. Total issuance reached $287.8 billion in Q2, for a strong increase of $46.9 billion or 19.5%.  Green bonds accounted for 68.9% of issuance while sustainability and social bonds stood at 18.5% and 12.6%, respectively.  Year-to-date, global sustainable debt reached $528.7 billion versus $467.6 billion registered during the first six months of the prior year, or a 13% increase at $61.1 billion. A straight-line interpolation suggests that this year’s global issuance could exceed $1.0 trillion.

S-T Relative Performance of Selected Sustainable Indices vs. Conventional Indices to 6/30/2026 

Markets in Review. U.S. and international equity markets staged a powerful recovery in the second quarter of 2026, fully reversing a difficult first quarter driven by the escalation of the Iran conflict and an oil-price shock. The S&P 500 gained 15.2% in the quarter, its strongest three-month showing in several years, lifting the year-to-date total return to 10.2% through June 30. At the same time, small cap stocks added 21.5% in the first quarter and 22.6% year-to-date.  Gains for the S&P 500 were concentrated in April and May, powered by resilient earnings and surging AI-infrastructure capital spending.  June itself was choppier, with the index slipping 0.95% as renewed Iran cease-fire violation headlines and profit-taking interrupted the rally in the final week of the month.

International developed and developing markets, on a combined basis, outpaced the U.S. for the six-month period but lagged slightly during the second quarter. Emerging markets, in particular, delivered standout returns of 24.05% in the second quarter and 23.85% year-to-date according to the MSCI Emerging Markets Index.  These postings bolstered international results, while international developed market equities trailed the S&P 500 in the second quarter and on a year-to-date basis. Fixed income was a story of modest, steady gains.  The Bloomberg U.S. Aggregate Bond Index was up 0.67% quarter-to-date and 0.62% year-to-date, with credit outperforming Treasuries as spreads tightened alongside the broader risk-on tone. 

It’s worth noting that June itself reflected a change in character from the two months that preceded it. Every major asset class gave back ground or advanced only modestly in June, in contrast to the broad, powerful gains of April and May—offering a reminder that the second quarter’s headline strength was concentrated in a relatively narrow window rather than distributed evenly across the quarter. U.S. and international equities both slipped or were roughly flat as cease-fire-violation headlines resurfaced late in the month, while fixed income posted a modest 0.24% increase.  

The trailing 12 months tells a third, complementary story. U.S. and international equities were both solidly higher over the full year, with the S&P 500 up 22.3%, and international benchmarks, led by emerging markets, running well ahead of that, even after absorbing the first-quarter shock from the Iran conflict. The scale of the past year’s rally, however, has not been evenly shared.  It favored small-cap and emerging-market stocks and sectors such as energy, materials, and other commodity-linked cyclicals that sustainable/ESG-screened indices structurally underweight. 

Sustainable mutual funds and ETFs.  Labeled long-term sustainable mutual funds and ETFs gained an average 0.52% in June and 10.1% since the start of the year.  ETFs, with their higher stock and commodities exposures but lower level of bond investments, registered an average negative 0.96% in June while mutual funds recorded an average gain of 0.84%.  Across the board, U.S. equities posted an average gain of 1.7%, international equity funds added 0.3% and taxable bonds eked out a 0.2% gain.    

Near-term results posted by selected sustainable indices. Four of the six selected sustainable indices posted positive results in June. Performance results across the six benchmarks ranged from a low of -1.13% posted by the MSCI Emerging Markets Index to a high of 4.69% registered by the MSCI USA Small Cap Selection Index. At the same time, five of the six MSCI sustainable indices outperformed their conventional counterpart in June—for the first time so far this year. Excess returns in June ranged from 0.01% registered by the Bloomberg MSCI US Aggregate ESG Focus Index to a high of 1.23% achieved by the MSCI EAFE Selection Index.  Trailing by 58 basis points, only the MSCI USA Small Cap Selection Index failed to outperform its conventional counterpart.

The above average relative performance results in June were not matched by the relative outcomes posted over the trailing three-, six-and twelve-month intervals.  In fact, over the trailing twelve months, only the MSCI USA Selection Index and the Bloomberg MSCI US Aggregate ESG Focus Index managed to outperform their conventional counterparts.  At the same time, the MSCI USA Small Cap Selection Index and the MSCI Emerging Markets Selection Index registered some of the widest 12-month performance variations: -7.82% and 15.12%, respectively. 

Intermediate-to-long term results posted by sustainable indices. The MSCI USA Selection Index is the only one of the five selected stock-oriented benchmarks that distinguishes itself by posting consistent outperformance results over the three-, five- and ten-year intervals. While also posting positive results, the other four equity indices underperformed when compared to their conventional counterparts over the trailing three- five- and ten-year intervals.  As for 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, often achieving the same results or, if they vary, the results deviate by no more than one-to-two basis points in either direction. At the end of June, the relative results over the trailing three- and five-year periods are either flat or positive.