Stats › Active, passive and flows › ESG funds
Sustainable and ESG funds
Sustainable funds are funds that promise to take environmental, social or governance factors into account when they choose what to hold. That's a simple enough idea. What's less simple is where the money is actually going, what the label legally commits a fund to, and whether any of it has helped or hurt returns.
This page has four parts. The flow figures, and specifically the split underneath the headline, because the headline on its own tells you close to nothing. The research finding that reverses the usual sales pitch, which is that green assets doing well is evidence of lower future returns rather than higher ones. The evidence base, split into the two separate questions people constantly mash together. And the naming rules, which are quietly the most consequential thing happening in the category right now. I wrote this one because ESG is an area where the marketing and the measurement point in different directions and almost nobody puts them side by side. I'm not making an argument for or against sustainable investing here. Somebody who knowingly accepts a lower expected return in exchange for holding assets they'd rather own is making a perfectly coherent choice. What I object to is being sold that choice on the basis of past outperformance, when the research says the outperformance is the reason to expect less.
One thing worth knowing before you read on. Several figures I wanted are behind registration walls, including global asset totals and the count of funds being relabelled. Rather than estimating them, I've listed what's missing in the notes at the bottom. The gaps are stated, not filled.
Global sustainable funds took in $3.7 billion in the second quarter of 2026, and the headline hides the real story: passive strategies gathered $11.4 billion while active sustainable funds lost $7.8 billion. European inflows fell from a restated $8.2 billion to $3.5 billion in a quarter. The most important research finding is counterintuitive and rarely reported. Pástor, Stambaugh and Taylor show that green assets' strong realised returns reflect unexpectedly strong increases in environmental concern, not high expected returns, and estimate lower expected returns for green stocks than for brown. Realised outperformance is evidence of a repricing that lowers future returns.
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Below this point there are 9 sections, 1 chart and 5 named sources, roughly 2000 words of it. Every figure carries the source it came from and the date the data is from.
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