In the first six months of the year, sustainable funds posted a median return of 12.5%, ahead of traditional funds’ 9.2%, due to the former’s greater exposure to investments in Europe and elsewhere globally.
The outperformance by sustainable funds was reported in an analysis of Morningstar data by the Morgan Stanley Institute for Sustainable Investing, released this week.
After underperforming in the second half of 2024, sustainable funds’ H1 2025 returns mark their strongest period of outperformance since the institute began tracking data in 2019.
Assets under management (AUM) in sustainable funds grew to a new high of US$3.92 trillion as of 30 June, up 11.5% from December 2024, the report said.
First-half inflows to sustainable funds totalled US$16 billion, as assets added in the second quarter more than offset small outflows in the Q1 2025. However, this is tracking below prior years’ and traditional funds continue to see stronger inflows.
While 70% of sustainable funds invest either in Europe or globally, only 41% of traditional funds do, investing more heavily in the Americas and Asia Pacific. In the first half 2025, sustainable funds outperformed within most regions, and across all asset classes. Geographical differences in performance were particularly pronounced for fixed-income funds, the report added.
Over a longer period, sustainable funds have outperformed traditional funds. Investing a hypothetical US$100 into a sustainable fund in December 2018 would equate to US$154 today, while investing US$100 into a traditional fund over the same period would equate to US$145 today, according to the institute.
