Sustainable Investing Monitor-September 1, 2025

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

Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), based on Morningstar classifications, closed the month of August with $367.7 billion in net assets across a combined total of 1,238 funds representing 1,030 mutual funds/share classes and 208 ETFs.  This compares to last month’s 1,245 funds/share classes and a net drop of seven funds/share classes, largely consisting of ETF closures and rebrandings, a level that represents the smallest monthly decline in the number of mutual funds/share classes and ETFs so far this year.  The reading of assets under management was higher for the fifth successive month and has now exceeded the $366.3 billion reached at the end of November 2024. The August increase of $4.7 billion, or a gain of 1.3%, is attributable to a combination of capital appreciation as well as cash outflows as sustainable long-term funds posted an average total return of 2.11%.  Exchange traded funds contributed a net of $2.8 billion in assets in August while the assets of mutual funds expanded by $1.8 billion, or 0.8%.      

Using a simple back of the envelope calculation, the gains achieved by sustainable long-term funds in August were entirely attributable to capital appreciation ($7.7 billion).  Offsetting this amount were negative flows in the amount of $3.0 billion.  

From the start of the year, combined assets under management increased by $14.4 billion, or 4.1%. The increase was largely attributable to net gains by ETFs that added some $12.4 billion while the larger mutual funds segment added about $2 billion.          

New Sustainable Fund Launches

One new sustainable fund listing was recorded in August, the target date Putnam Sustainable Retirement 2070 Fund with its eight share classes.  This brings the new listings year-to-date total to six funds (excluding new share classes), compared to seven new listings during the same period in 2024 and 63 in 2023. Of the six new listings this year, four are ETFs and two are 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.

During the month of August, the number of focused sustainable funds/share classes dropped by a net of seven funds/share classes, the smallest number of net closures, reorganizations and/or rebrandings so far this year that have averaged 20 funds/share classes per month. August’s drop in the number of mutual funds and ETFs due to closures, rebrandings and reorganizations, including seven ETFs, involved the notable reorganization of the $56 million Tortoise Global Water ESG Fund that upon its merger with another Tortoise Capital Advisors managed fund removed the ESG screening criteria mandate. At the same time, Schwab rebranded the $24 million Schwab Ariel ESG ETF by eliminating the ESG reference in its name and dropping the fund’s negative screening approach as well as consideration of ESG factors in investment decisions.     

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

According to Q2 reports from the World Bank and market analysis from firms like Moody’s and ICE, global green bond issuance has remained the dominant force in sustainable finance through August 2025, while social bond issuance has continued a multi-year decline. Total sustainable bond issuance is projected to remain at or near 2024’s $1 trillion level, balancing growth in certain areas against macroeconomic headwinds and increased scrutiny.  That said, final issuance data covering the first two months of the third quarter is not yet available and the summary below covers reporting through Q2 2025.  

According to SIFMA, global sustainable bond issuance, including green bonds, social and sustainability bonds, hit $218.2 billion, down from $234.2 billion in Q1, or a decline of 6.9%.  YTD, issuance reached $452.4 billion versus $485.9 billion during the equivalent period in 2024, or a decline of 6.9%.  

In the US, sustainable bond issuance dropped to $37.0 billion from $55.0 billion in the first quarter of the year.  This represents a sharp quarter-over-quarter decline of 32.7% and a Y/Y decline of 4.7%.  At $92.0 billion in issuance during the first six months of the year, sustainable bond issuance in the US is up from $83 billion or 10.9%.  US sustainable bond issuance in Q2, which accounts for around 1% of total long-term US bond issuance per SIFMA, experienced a much sharper percentage decline versus a drop of 2.9% total bond market issuance in Q2 and a Y/Y increase of 11.4%.  

Global green bond issuance reached $147.4 billion in Q2, versus $130.3 billion in Q1, or an increase of 13.1%.  At the same time, both social and sustainability bond issuances recorded 18.3% and 39.4% declines, respectively.  In the US, issuance of green bonds reached $12.5 billion in Q2 versus $15.6 billion in Q1, or a 19.5% decline. Social and sustainability bonds, at $4 billion and $20.5 billion, respectively, registered sharper drops of 37% and 38%.    

Assuming no change in issuance patterns over the next six months, sustainable debt volume could reach about $900 billion and exceed last year’s level of $866.2 billion (per Sustainable Research and Analysis).  

It should be noted that SIFMA’s data does not include sustainability linked bonds, sustainability linked notes and transition bonds.         

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

August marked the fourth consecutive month of stock market gains, fueled by an insatiable appetite for AI and growing expectations of lower interest rates ahead. At the same time, bonds experienced modest weakness while international markets offered better value and growth potential. Yet beneath the surface lie potent headwinds: rich valuations, fragile credit conditions, lingering policy uncertainties, AI exuberance, and geopolitical risks. While optimism is still in the air, investors would do well to balance conviction with caution, diversify thoughtfully, and remain vigilant against seasonal and structural vulnerabilities.

US Stocks.   The S&P 500 Index posted a gain of 2.0% in August, following three successive higher monthly increases of 2.2%, 5.19% and 6.3%, and above average year-to-date and trailing twelve-month gains of 10.8% and 15.9%, respectively.  The Dow Jones Industrial Average added 3.4% while the NASDAQ Composite Index returned 1.7%.  These gains extended their returns from the start of the year and trailing twelve months to 8.3% and 11.6% and 11.5% and 22%, respectively.  While large-cap growth stocks lagged value stocks, the reverse was the case for mid-cap and small cap stocks. The Russell 2000 index added 7.1% in August, and microcap stocks gained 9.3%.

US Bonds.  In the fixed-income space, U.S. Treasury yields declined modestly, with the 10-year Treasury yield dropping 14 basis points from 4.37% to 4.23%.  This pushed the Bloomberg U.S. Aggregate Bond Index slightly higher, to 1.20% for the month and to 4.99% year-to-date and 3.14% over the trailing 12-months.  August’s Bloomberg U.S. Aggregate Bond Index eclipsed the 1% return achieved by Corporate A rated bonds that were up 1% but trailed the 1.25% return delivered by corporate high yield bonds (1.25%).

International Stocks.  Overseas equity markets delivered mixed but generally stronger gains.  The MSCI ACWI ex USA Index gained 3.5% while the MSCI EAFE Index both added 4.3% and the MSCI Emerging Markets Index recorded an increase of 1.5%.  Year-to-date results were 22.2%, 22.8% and 19.6%, respectively. Global investors increasingly shifted toward ex U.S. equities, drawn by more attractive valuations and growth prospects abroad. A weakening U.S. dollar could further bolster international returns for U.S.-based investors.

Sustainable Funds.  Focused sustainable mutual funds and ETFs, a total of 1,238 mutual funds/share classes and ETFs with long-term assets of $367.7 billion at the end of August posted an average gain of 2.11%.  Funds delivered average total returns of 10.0% and 8.7% since the start of the year and over the trailing 12 months, respectively.  As a group, the 208 ETFs added an average of 3.14% in August as compared to 1.9% for 1,030 mutual funds/share classes—the variation in favor of ETFs attributable to the wide (>5%) variations in exposure to sector equity as well as international funds that achieve higher average returns in August relative to mutual funds as well as a reduced exposure to taxable bond funds with their lower returns.

Sustainable Indices. Only a single chosen sustainable index, the MSCI USA Small Cap Selection Index published by MSCI, outperformed its conventional counterpart in August while five sustainable stock and bond indices underperformed.  This is a reversal from the relative results achieved over the previous four months, during which three indices per month outperformed.

The indices are chosen to represent a broad cross section of sustainable investing market segments. Relative underperforming indices, in descending order, included the MSCI USA Selection Index, the MSCI EAFE Selection Index, the MSCI ACWI ex USA Selection Index, MSCI Emerging Markets Index and the Bloomberg MSCI US Aggregate ESG Focus Index that lagged by 51 basis points (bps), 44 bps, 38 bps, 18 bps and 1bp.   Year-to-date and trailing twelve-month relative results are slightly better. Four rather than five indices underperformed, while the MSCI Emerging Market Selection Index posted a wide 5.16% difference relative to its underlying benchmark.

Over the intermediate and long-term horizons, the performance results of sustainable indices generally lag conventional benchmarks. Two exceptions are the MSCI Emerging Markets Select Leaders Index and the MSCI USA ESG Leaders Index that outperformed their conventional counterpart over the past three and ten years but fell behind over the latest three-year time period.