Sustainable Investing Monitor-June 2026

Long-Term Net Assets of Focused Sustainable Mutual Funds and ETFs: 2025 – 5/31/2026

U.S. equity markets, responding to a robust first quarter earnings season, delivered another strong month.  All three major indexes closed at record highs on the final trading day of May. This along with net positive flows were the drivers behind another solid gain of $16.1 billion in the assets of labeled long-term sustainable funds, based on Morningstar’s classifications, following last month’s $28.9 billion gain. This lifted assets to $403.3 billion, across the universe of 1,022 long-term sustainable mutual funds/share classes and ETFs. These represent a combined total of 384 mutual funds, consisting of 834 share classes and 187 ETFs versus 1,091 in April, for a decline of 65 funds/share classes due to data adjustments as well as fund liquidations. 

May’s gain in net assets was driven by the addition of $4.3 billion attributable to mutual funds while ETFs added $11.8 billion in net assets, after last month’s increase of $11.6 billion. Using a back of the envelope calculation, long-term mutual funds experienced net cash outflows totaling an estimated $2.6 billion whereas ETFs recorded estimated net inflows of $4.8 billion versus last month’s $4.4 billion gain, for a net inflow of about $3.7 billion in net assets. [Note: These numbers do not reflect adjustments for fund liquidations and data adjustments which would lift net inflows.]

Since the start of the year, labeled long-term sustainable mutual funds and ETFs expanded by $28.7 billion, compared to a net decline of $7.2 billion during the comparable period in 2025.

New Focused Sustainable Fund Launches: 2025 – 5/31/2026

There were no new focused sustainable fund launches recorded in May 2026, based on Morningstar reporting, which was also the case over the previous four months, for a year-to-date total of zero new fund launches. This compares to five fund launches during the same five-month 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.  Compliance with the SEC’s amended Names Rule that goes into effect this month may also be holding back new fund launches.    

A decline during the month of May in the number of funds/share classes was largely attributable to the liquidation of three funds managed by Calvert Management, with assets between $7.6M and $16.3M, including the Calvert Emerging Markets Focused Growth Fund ($7.6M), Calvert Focused Value Fund ($13.1M) and Calvert Global Small Cap Fund ($16.3M), for a total of $37.0 million.  In addition, the $3.5 billion BlackRock LifePath Dynamic target date fund were reclassified, covering a total of 50 funds/share classes.  

Green, Social and Sustainability Bonds Issuance to 3/31/2026  

Data covering sustainable debt issuance for the April-May 2026 time interval have not been finalized as of this date. For a more detailed recap of first-quarter results, see April’s Sustainable Investing Monitor.

In the meantime, it was informally reported by Climate Bonds Initiative that the volume of new global ESG and sustainable bond issues reached $39.4 billion in April 2026, representing a surge of 85% compared to April 2025 and more than doubling the volume from March 2026. This monthly jump was heavily propelled by prominent green bond placements in developed markets, such as a major $5.7 billion debut Eurobond to fund AI data center infrastructure.  By the end of May 2026, the global sustainable debt market reached a new milestone, with the cumulative historical aligned volume of green, social, sustainability, and sustainability-linked (GSS+) debt officially surpassing $7 trillion. 

S-T Relative Performance of Selected Sustainable Indices vs. Conventional Indices to 5/31/2026 

Markets in Review. US and international equity markets capped another strong month while bond markets held up well.   

U.S. Equities.  U.S. equity markets, responding to a robust first quarter earnings season, capped another strong month.  

All three major indexes closed at record highs on the final trading day of May. The technology-laden Nasdaq-100 led the advance, posting a gain of 10.6% in May and a year-to-date increase of 20.45% through month-end.  At the same time, the S&P 500 Index rose by 5.3%, or roughly half the Nasdaq level and at a slightly higher clip of 11.3% from the start of the year.  The Dow Jones Industrial Average, while also reaching record territory, saw a more modest monthly gain of 2.9% in May and 6.9% year-to-date, reflecting the index’s lower concentration in high-growth technology names.

The primary drivers of the rally were a robust first-quarter earnings season, with approximately 78% of S&P 500 companies beating consensus estimates, above the 10-year historical average of 74%, along with sustained momentum from investments in artificial intelligence. Continued strength in semiconductors, defense, and energy production contributed to broad-based sector gains. Small- and mid-cap stocks also participated meaningfully, with the Russell 2000 Index adding 4.4% in May and posting an impressive 18% gain year-to-date through May, consistent with the broadening of market leadership that strategists had anticipated for 2026.

International Equities.  Led by emerging markets, international equities also delivered strong returns in May, underscoring the global nature of the equity rally in 2026.  The MSCI ACWI ex USA gained 5.03% in May and its 14.4% year-to-date gain outperformed the S&P 500 while the MSCI Emerging Markets Index surged by 9.7% and 25.6% on a year-to-date basis, driven by technology and AI-related exposure in Asian markets, particularly Taiwan and South Korea, as well as a weaker U.S. dollar that historically amplifies EM returns. China’s advances in AI technology have reinforced investor enthusiasm for the region. 

Developed market equities also performed at an above average level.  The MSCI EAFE Index, which tracks large- and mid-cap stocks in Europe, Australasia, and the Far East, gained 3.2% in May and 8.8% year-to-date through May. Europe benefited from a favorable earnings environment, though lingering geopolitical tensions and shifting government spending priorities, including higher defense outlays, created pockets of uncertainty. 

Bonds. The U.S. fixed income market experienced yield volatility during May, with the 10-year Treasury yield reaching an intramonth high of 4.67% before settling back to 4.45% at month-end. The 2-year note closed May at 3.98%, keeping the yield curve in positive territory as the Federal Reserve signaled a cautious approach to further rate reductions. With core inflation remaining above the Fed’s 2% target and labor market data sending mixed signals, markets are pricing in a prolonged period of elevated rates, potentially extending into 2027.

Despite the yield headwinds, credit markets held up well. The Bloomberg U.S. Aggregate Bond Index posted modest positive returns of 0.31% in May and 0.38% year-to-date as income generation remained the dominant driver of performance. Investment-grade corporate spreads traded in the 70–90 basis point range, and high-yield credit also generated positive returns, up 0.49% and 1.68% since the start of the year reflecting on resilient corporate fundamentals. Municipal bonds continued to offer compelling opportunities, particularly in longer-duration and lower-quality segments, while TIPS remained relevant given ongoing inflation uncertainty.  Overseas, fixed income markets delivered slightly better returns as the Bloomberg Global Aggregate ex USD Index posted a gain of 0.35% in May and 0.59% since the start of the year.  

Sustainable mutual funds and ETFs.  Labeled long-term sustainable mutual funds and ETFs, a total of 1,022 funds/share classes that ended May with $403.3 billion in net assets, up $16.1 billion, added an average of 3.2% in May and 9.5% since the start of the year.  ETF, with their slightly higher stock content and higher technology exposure, averaging 75% versus 68.5% for mutual funds, recorded an average gain of 4.66% while mutual funds added an average of 2.88%, or almost 2% lower.  International funds registered an average gain of 4.3% and 13.9% year-to-date while US Equity funds gained an average of 4.2% and 10% over the first five months of 2026.  Taxable bond funds posted a modest average gain of 0.35% in May and 0.69% year-to-date. 

Near-term results posted by selected sustainable indices. [Comprised of six indices, these benchmarks were 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]. All six sustainable indices posted positive results in May, ranging from 0.31% posted by the Bloomberg MSCI US Aggregate ESG Focus Index to 4.56% recorded by the MSCI USA Selection Index.  That said, only one of the six MSCI sustainable indices outperformed its conventional counterpart in May. The index, the MSCI EAFE Selection Index, exceeded by one basis point the performance of the MSCI EAFE Index (Net).  The other four stock-oriented indices, including the MSCI USA Selection Index, the MSCI USA Small Cap Selection Index, the MSCI ACWI ex USA Selection Index and the MSCI EM Selection Index, underperformed by a range starting from 0.67% to 6.29%. The sixth index, the Bloomberg MSCI US Aggregate Focus Index matched its conventional counterpart, the Bloomberg US Aggregate Bond Index as both posted returns of 0.312%.  The poor relative showing in May extends to include declines over the three-five- and twelve-month trailing intervals. Moreover, the variations in returns were wider than usual.  The MSCI Emerging Markets Selection Index trailed its conventional counterpart by 16.44% over the trailing twelve months while the MSCI Small Cap Selection Index lagged by 8.37%. Regarding the Emerging Markets Select Index, its massive overweight position in TSMC at 27.58% vs. 14.21% in the parent performed well on AI semiconductor demand, however, the rest of the EM market (particularly Korean chipmakers) appears to have outpaced it. So, the Selection Index’s extreme TSMC concentration, combined with negligible Korea exposure, means that it captured the Taiwan AI story but missed the Korean AI memory story.      

It should be noted that the six 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,

Intermediate-to-long term results posted by sustainable indices. The MSCI USA Selection Index continues through the month of May to be the only one of the five stock-oriented benchmarks that is posting consistent outperformance results over the three-, five- and ten-year intervals. While also posting positive results, the other four indices underperformed when compared to their conventional counterparts over the trailing three- five- and ten-year intervals.  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. At the end of May, the relative results over the trailing three- and five-year periods are positive.