A switch of vehicles by UK pension schemes for their sustainable investment strategies has added to the outflows suffered by ESG funds, according to new quarterly analysis by Morningstar Sustainalytics.
Global sustainable funds saw an estimated US$27 billion net outflows in Q4 2025, compared with almost US$55 billion outflows in the previous quarter, the fund data and analytics firm said.
Redemptions by large UK institutional investors – reallocating from pooled ESG funds into bespoke ESG mandates – accounted for much of the outflows in both quarters.
Europe – which account for the vast majority of global sustainable fund assets – saw net withdrawals of US$20 billion in Q4 2025, following the “exceptionally large” US$49.6 billion in redemptions in the previous quarter.
According to Morningstar, most of the Q3 2025 outflows were driven by redemptions from four UK-domiciled BlackRock authorised contractual schemes, following a client pension fund’s decision to transfer assets from these funds into BlackRock’s custom ESG mandates. The trend continued in Q4 2025, when Scottish Widows also moved money from a large, pooled fund to an ESG-tilted segregated mandate.
Most other markets saw smaller outflows, including the US, where sustainable funds saw US$4.6 billion of outflows in the fourth quarter of 2025 – the thirteenth consecutive negative quarter.
Morningstar Sustainalytics says the broader backdrop “remained challenging”.
“Persistent headwinds, including geopolitical tensions, the ESG backlash, regulatory backpedalling, and mixed performance, continue to weigh on investor appetite,” said Hortense Bioy, Head of Sustainable Investing Research at Morningstar Sustainalytics.
However, global sustainable fund assets rose by about 4% in Q4 2025 to US$3.9 trillion, due to stock market appreciation. Since the end of 2018, global sustainable fund assets have grown more than sixfold from roughly US$600 billion.
Separately, LSEG Lipper reported that total net assets in Sustainable Finance Disclosure Regulation Article 8 funds stood at €8.55 trillion at the end of Q4 2025, a quarter-on-quarter rise of €90.75 billion and a year-on-year rise of €462.21 billion. Article 9 fund assets were €325.63 billion, down from their 2024 peaks.
Total article 8 flows for Q4 2025 were €60.47 billion, down from Q3’s €110.97 billion, as a result of reduced money market fund flow, as article 9 shed €7.87 billion.
Bond funds attracted €43.32 billion in Q4 2025, or 55.04% of the flows to the asset class, and were also the best-selling sustainable asset class over 2025.
