Sustainable Funds Outperform, Hit Record AUM in H1 2026: Morgan Stanley

Sustainable investment funds outperformed their traditional fund peers in the first half of 2026, with stronger performance in every major region, according to a new report* from the Morgan Stanley Institute for Sustainable Investing, which also found that sustainable investment AUM grew during the period to reach a record $4.2 trillion at the end of Q2.

The report also indicated that net inflows into sustainable funds rebounded in H1 2026, after declining in 2025, but remained slower than net flows into traditional funds, leading sustainable funds’ share of total assets to decline to 6.1%, down from peak levels of 7.2% in 2023.

According to the report, after slightly underperforming in H2 2025, sustainable funds returned to outperformance in the first half of 2026, generating a median return of 4.9% compared with 4.0% for traditional funds.

By asset type, sustainable equity funds outperformed their traditional peers, with returns of 9.0% and 8.6%, respectively. While sustainable fixed income funds underperformed, sustainable funds’ greater exposure to equities supported the broader outperformance, according to the report.

By region, the report found that sustainable funds outperformed in all major regions, with particularly strong outperformance in the Americas, with returns of 8.8% compared with 5.5% for traditional funds, and in APAC, with returns of 11.6% compared with 4.8%.

The stronger performance in H1 2026 further expanded the long-term outperformance of sustainable funds over their traditional peers, according to the report, which indicated that sustainable funds have returned a cumulative 71% since 2018, compared with 59% for traditional funds.

According to the report, net inflows into sustainable funds turned positive in the first half of the year, reaching $38 billion in H1 2026, after net outflows of $75 billion in 2025. After rebounding sharply to $34 billion in Q1, however, net inflows into sustainable funds slowed to $4 billion in the second quarter.

Despite the return to positive flows, however, the report noted that as a percent of AUM, net inflows into sustainable funds, at 0.9% remained below those of traditional funds, at 2.5%. With lower relative flows, sustainable funds’ share of total fund assets fell from 6.5% at the end of 2025, and from a peak of 7.2% at the end of 2023, to 6.1% in H2 2026.

Click here to access the report.

*For the report, “Sustainable Reality,” Morgan Stanley uses Morningstar data to track AUM, flows and performance for Sustainable funds in comparison to Traditional funds across a universe of 99,000 global funds.