• US sustainable funds attracted nearly $3 billion in the second quarter, ending 14 consecutive quarters of net outflows.
• Passive strategies drew $6.5 billion, while actively managed sustainable funds lost $3.6 billion.
• Total US sustainable fund assets reached a record $398 billion, supported by inflows and stronger equity markets.

US sustainable funds returned to positive flows in the second quarter of 2026, ending more than three years of continuous withdrawals, according to new Morningstar research.

Investors added nearly $3 billion to the category during the quarter. It was the first period of positive flows since the beginning of 2022.

Inflows and market appreciation lifted total sustainable fund assets to a record $398 billion at the end of June. That was up 13% from $351 billion at the end of March.

The recovery was not broad-based. Morningstar found that investor demand remained concentrated in a small group of passive funds linked to electricity infrastructure, renewable energy and the wider energy transition.

Grid investment powered the recovery

One exchange-traded fund accounted for more than the category’s total net inflows.

The First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index ETF collected $3.1 billion during the quarter. It was the fund’s fourth consecutive quarter of positive flows.

Investors have placed more than $7.5 billion into the strategy over the past 12 months.

The fund invests in companies involved in electricity networks, grid equipment and energy management. Demand for those services has grown as artificial intelligence and data centres increase power consumption.

Renewable energy is also placing new demands on electricity systems. Utilities need stronger grids to manage fluctuating wind and solar generation while maintaining reliable supplies.

Eaton, one of the fund’s largest holdings, sells electrical equipment used by data centres, utilities and infrastructure operators.

Schneider Electric, another major holding, provides energy management, electrical distribution and industrial automation technology.

Both companies delivered strong gains during the first half of 2026. Eaton rose nearly 35%, while Schneider Electric gained 20%.

Those gains helped the infrastructure ETF rise 25%. The Morningstar US Market Index increased 10.7% over the same period.

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Energy security supported transition assets

The increase in electricity demand coincided with conflict in the Persian Gulf, which pushed oil prices above $100 per barrel.

Most sustainable funds hold limited exposure to conventional oil and gas producers. However, higher fossil fuel prices have strengthened the investment case for renewable energy and domestic power infrastructure.

Governments are also seeking to reduce their dependence on traditional fuel suppliers. That has increased policy attention on renewable generation, energy storage and grid resilience.

Enlight Renewable Energy almost doubled in value during 2026 through late July.

The company is a leading holding in the First Trust Global Wind Energy ETF. That fund gained 16% over the same period and attracted more than $60 million through the end of June.

For investors, the trend connects climate transition strategies with energy security and industrial policy. Electricity infrastructure is increasingly viewed as an economic and national security priority.

Passive funds dominated investor demand

Morningstar reported that passive sustainable strategies attracted $6.5 billion during the quarter.

Those inflows more than offset the $3.6 billion withdrawn from actively managed sustainable funds.

Active sustainable strategies have now recorded 13 consecutive quarters of outflows. Passive flows, by contrast, have improved considerably since late 2025.

The divide reflects a broader change across the US asset management industry. Investors continue to favour lower-cost index products over many higher-cost active strategies.

Passive sustainable fund assets rose from $167 billion to almost $199 billion during the quarter. They now represent roughly half of all US sustainable fund assets.

Equity strategies continue to dominate the category, holding 85% of total assets. Fixed-income funds account for 14%.

Global recovery remained uneven

Morningstar estimated that sustainable funds attracted $3.7 billion globally during the second quarter.

Europe and the US recorded positive flows. Canada, Japan, Australia and New Zealand, and most Asian markets outside China continued to report withdrawals.

Europe remains the dominant market, holding more than 80% of global sustainable fund assets.

Global assets reached an estimated record of $3.7 trillion, up from $3.5 trillion in the previous quarter. Most of the increase came from market appreciation rather than new capital.

For asset managers, the US return to positive flows provides cautious encouragement. Capital is returning, but investors remain selective. Funds tied to visible infrastructure spending, lower fees and measurable economic demand are capturing most of the recovery.