Sustainability, impact and environmental, social and governance (ESG) funds haemorrhaged USD8.6 billion of investment in first quarter of 2025, figures from Morningstar reveal.
This marked a significant reversal from the USD18.1 billion in restated inflows seen in the final quarter of 2024, and corresponds with growing anti-ESG legislation under the Republican administration in the US.
The US saw its 10th consecutive quarter of withdrawals, reaching USD6.1 billion in the three months to May 2025.
However, European investors are also withdrawing from sustainable funds, with outflows reaching USD1.2 billion in the first quarter of the year, contrasting with the restated inflows of $20.4 billion in the final quarter of 2024.
Morningstar notes that this is the first time Europe has recorded a quarter of net outflows since the organisation started tracking the ESG universe in 2018.
Yet not all portfolio managers have seen outflows from their sustainable funds.
EBI Portfolios, an evidence-based investor, launched socially responsible investment (SRI) and impact portfolios in 2024 which have helped the firm attract GBP1 billion in the past year to reach GBP3.9 billion AUM.
Jonathan Griffiths, Investment Product Manager at EBI, acknowledges the ESG backlash, but says it has not extended to his target markets.
“We’ve not seen [anti-ESG sentiment] in our flows. Our adviser clients and their online clients are still very much pro-sustainable investing.”
He adds: “We’ve all seen how strong the ESG wave has been for many years, so it’s inevitable that you have some dips and rises in interest. We are living through an interesting time led by [US President] Donald Trump, with a shift in policies that has led to a backlash in the US, and which has had an impact globally. But we’re not seeing that.”
Griffiths says EBI remains focused on ESG and sustainable investing arguing that climate change is one of the most pressing issues investors face globally.
“Our clients believe environmental degradation is real, and they want assets their assets to be positioned somewhat accordingly in light of that, or at least not making that problem worse. They very much remain on the sustainable investing train.”
Griffiths says EBI broadly welcomes the Financial Conduct Authority’s (FCA) recent decision to abandon plans to apply the Sustainability Disclosure Requirements (SDR) labelling regime to portfolio managers.
Earlier this month the UK’s financial watchdog responded to firms’ requests for more time to adjust to the SDR regime, demanding clarity on how it would apply to different portfolios.
The FCA says it will focus on a multi-firm review into model portfolio services and how firms are applying the Consumer Duty.
Griffiths says: “We’re glad that the FCA has taken the time to implement the [SDR labelling regime] correctly and really engage with the industry. We fed back as part of the consultation last year about the extension to portfolio managers and noted some pitfalls. Most notably the challenges with labelling bonds in a portfolio, which is typically harder to do than with equities.”
However, he adds: “It does leave us slightly disjointed as an industry. UK funds are subject to SDR but overseas funds are not yet in the regime. Hopefully this will change because many of the funds in which we invest are overseas.”
