The second quarter of 2025 was marked by a recovery in environmental, social and corporate governance investments.
The second quarter of 2025 saw a rebound in environmental, social and governance (ESG) investing after a sluggish start to the year, with global sustainable assets under management up 11% quarter-on-quarter, according to Jefferies data.
Europe continued to dominate the ESG landscape, accounting for around three-quarters of total sustainable assets.
The region also attracted around $11 billion in inflows, the second-highest quarterly total since early 2023.
This counters speculation that European demand for sustainable products is waning, Jefferies said.
The data showed that retail investors accounted for the majority of inflows into actively managed funds, reversing the outflows seen in the first quarter.
Actively managed ESG strategies in Europe showed resilience, with more stable flows than the broader active market. In contrast, passive sustainable products saw their allocations shrink, indicating that investors view sustainable investing as an area that requires active decision-making.
By the end of the quarter, 59% of the European equity market had integrated ESG considerations, representing €6.4 trillion in assets held in Category 8 and Category 9 funds.
Category 8 funds were the clear winners, attracting €84 billion in inflows compared to €32 billion for Category 6 funds, while Category 9 products continued to see outflows.
The strongest momentum was seen in fixed income, where Category 8 funds alone attracted €42 billion, while equity-focused products experienced outflows.
New fund launches in 2025 highlight the changing priorities of investors. Almost all new funds were in Article 6 or Article 8 categories, with Article 8 products being the largest on average.
Among the biggest launches of the year were the European Defence Funds, signalling growing interest in sectors related to security, artificial intelligence, space, nuclear energy and the energy transition.
Meanwhile, regulatory adjustments were also shaping the market. More than 550 Article 8 funds changed or removed ESG-related terms from their names to comply with the European Securities and Markets Authority’s May 2025 deadline for fund naming rules. Article 9 funds generally retained ESG references but changed their descriptions.
In the UK, the rollout of sustainability labels under the Sustainability Disclosure Requirements has been slow, with just over 100 funds adopting them by the end of June. The “Sustainable Focus” label was the most widely used.