Strong rebound in sustainable fund performance in 2Q26 as thematic inflows recover

Overview

This report tracks fund flows, assets under management, relative performance, and valuation changes for global sustainable investment funds in 2Q26. The core conclusion is that sustainable equity funds remained in a modest outflow position, but thematic flows recovered significantly, particularly for Climate Action strategies related to reliability, clean technology, power grids, and infrastructure. Meanwhile, sustainable fixed income funds maintained steady inflows, and sustainable funds also posted a strong rebound in performance relative to peers.

Core views

The report believes that the sustainable investment market in 2Q26 exhibited a combination of differentiated flows, a thematic recovery, and improved performance. Equity funds continued to see modest overall outflows, mainly due to pressure from active funds, Western Europe, and RoW. However, North America recorded its first quarterly inflow in three years, while Passive SI ETFs also returned to inflows. Thematic fund inflows reached their highest level in three years, driven primarily by Climate Action, reflecting continued investor focus on supply chain disruption, rising power demand, and reliability-related themes. Sustainable fixed income funds have maintained net inflows for years, indicating more stable demand for the asset class.

Analysis framework

Goldman Sachs primarily analyzes fund flows, AUM, Morningstar peer-fund return percentiles, regional and strategy classifications, ETF excess returns, and valuation premium indicators. The report breaks funds down by region, asset class, active/passive status, Integration/Thematic strategies, and thematic subcategories, and uses peer-fund percentiles to measure sustainable fund performance relative to both non-sustainable and sustainable peer funds.

Methodology notes

• Fund flow analysisSustainable fund screening and classification

  ESG or sustainable investment must be considered central to the investment strategy or fund marketing. Funds that only use exclusionary screens without other ESG strategies are excluded, as are fund-of-funds to avoid double counting.

  This methodology covers approximately 4,312 ESG funds and approximately $2.6tn in equity AUM. It is suitable for observing growth trends in the ESG category, but is more stringent than broader ESG asset definitions.

• Relative performance analysisMorningstar peer-fund return percentile

  Fund returns are ranked within Morningstar fund categories, with medians and percentiles used to measure sustainable fund performance relative to peers.

  The report shows that global sustainable funds ranked at the 58th percentile for median performance in 2Q26, compared with the 65th percentile for North America, the 59th percentile for Western Europe, and the 54th percentile for RoW.

• Valuation analysisSUSTAIN Operational E&S Framework

  Compare the 12-month forward EV/EBITDA premiums of E&S leaders versus laggards, sustainable-fund overweight stocks, and Widely Owned stocks.

  The report indicates that the valuation premium for top E&S companies is approximately 5%, near a ten-year low; the premium for stocks most overweighted by sustainable funds is approximately 13%, while the premium for stocks on the Widely Owned list is approximately 24%.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Sustainable equity funds

  Core research subject

  Strengths

  Relative performance rebounded significantly in 2Q26, with global median performance reaching the 58th percentile and AUM remaining elevated.

  Weaknesses

  Still recorded approximately $4.7bn in net outflows in 2Q26, with substantial outflows from active funds.

  Comparison

  Non-Sustainable equity funds continued to see significant global inflows during the same period, at approximately +$232bn.

  Risks

  If redemptions from active funds persist, they could constrain the recovery in sustainable equity product flows.

• Sustainable fixed income funds

  Stable-inflow asset class

  Strengths

  Attracted approximately $19bn in inflows in 2Q26, with net inflows for 25 consecutive quarters.

  Weaknesses

  The report provides limited disclosure on the drivers of fixed income subcategories.

  Comparison

  Fixed income inflows were more stable than those of sustainable equity funds.

  Risks

  Changes in interest rates, credit spreads, and product classification methodologies could affect future inflows.

• Thematic funds / Climate Action

  Core theme of the flow recovery

  Strengths

  Thematic funds attracted approximately $4.9bn in inflows in 2Q26, while Climate Action attracted approximately $7.3bn, related to power grids, infrastructure, and clean technology themes.

  Weaknesses

  Most thematic subcategories other than Climate Action experienced outflows in 2Q26, with Resource Security recording approximately $2bn in outflows.

  Comparison

  Thematic fund flows outperformed Integration funds, which recorded approximately $10.4bn in outflows in 2Q26.

  Risks

  Clean energy ETFs have weakened in relative performance since April 2026, while uncertainty surrounding AI demand and other factors could create volatility.

• ESG Integration ETFs

  Relative performance observation subject

  Strengths

  Large Integration ETFs all recorded positive excess returns in 2Q26, outperforming by approximately 1.2 percentage points on average.

  Weaknesses

  Long-term relative performance remains mixed.

  Comparison

  Water ETFs performed strongly in 2Q26, while clean energy ETFs reversed course.

  Risks

  Valuation, style rotation, and differences in peer-fund benchmarks could affect relative returns.

Key data

• 2Q26 sustainable equity fund flows-$4.7bnGlobal sustainable equity funds experienced modest quarterly net outflows.
• Sustainable equity fund flows YTD 2026-$3.6bnA significant moderation from the -$113bn outflow in full-year 2025.
• 2Q26 sustainable fixed income flows+$19bnNet inflows have been recorded for 25 consecutive quarters, with approximately +$31bn year to date in 2026.
• 2Q26 Thematic fund flows+$4.9bnThe largest quarterly inflow in three years.
• 2Q26 Climate Action flows+$7.3bnDriven by clean technology, grid components, infrastructure, and low-carbon transition-related strategies.
• 2Q26 Sustainable active flows-$10.5bnSustainable active strategies experienced outflows, with approximately -$5.3bn each from Western Europe and North America.
• 2Q26 Sustainable passive flows+$5.8bnPassive strategies continued to attract inflows, with North America contributing approximately +$6.6bn.
• Global sustainable equity AUM$2.6tnEquity AUM under the report's fund-screening methodology.
• Global sustainable AUM across all asset classes$4.6tnExhibit 5 shows that AUM across all asset classes is at a historical high.
• 2Q26 global sustainable fund relative performance58th percentileThe strongest quarterly relative performance in nearly 2.5 years.

Impact & implications

From an investment perspective, fund flows have not broadly strengthened, but market preferences are shifting from broad ESG allocations toward more specific and verifiable themes involving reliability, power demand, clean technology, and infrastructure. Continued inflows into sustainable fixed income products indicate more resilient asset-allocation demand. Although sustainable equity funds remain under redemption pressure, renewed inflows into thematic ETFs and passive products could provide marginal support for related industry chains and fund products. Softer valuation premiums suggest reduced valuation crowding in some sustainable quality stocks, while the pullback in clean energy ETF performance since the end of May indicates that volatility remains elevated within the theme.

Risks

• Sustainable equity funds continue to face net outflow pressure, particularly active funds and certain regional markets.
• RoW sustainable funds experienced one of their largest quarterly outflows in more than a decade, affected by outflows from large China-related ETFs.
• Clean energy ETFs have weakened in performance since the end of May, showing that a recovery in thematic flows does not necessarily mean that all related assets will continue to outperform.
• The relatively strict ESG fund classification methodology may underestimate asset levels under broader ESG inclusion criteria.
• The number of sustainable fund closures continues to exceed new launches and renamed funds, indicating continued contraction pressure on industry product supply.

What to watch

• Whether inflows into North American sustainable equity funds can continue in subsequent quarters.
• Whether Climate Action inflows expand from a single strategy or a small number of strategies into a broader range of clean technology, grid, and infrastructure products.
• Whether redemptions from Sustainable active funds ease and whether inflows into Passive SI ETFs can offset active outflows.
• Whether the trend of consecutive inflows into sustainable fixed income funds can continue as the interest-rate environment changes.
• Whether valuation premiums for high-scoring E&S companies, stocks overweighted by sustainable funds, and stocks on the Widely Owned list continue to contract or begin to expand again.