European ESG funds resilient despite market and regulatory headwinds
European ESG funds recorded resilient performance between Q1 2023 and Q3 2025, despite increased volatility and a less favourable environment. French-labelled funds are also adapting to new SRI label requirements, reinforcing their attractiveness.
Navigating market and regulatory headwinds
ESG investments face multiple headwinds, including political backlash in the US and regulatory instability in Europe.
The underperformance of certain 'green' segments and rising long-term rates have penalized capital-intensive green stocks, with the MSCI Global Alternative Energy Index falling 21 percent annually between 2022 and 2024. Global ESG funds recorded net outflows of USD 55.1 billion in Q3 2025, largely a technical movement due to a USD 48 billion transfer from open-ended funds to private mandates.
Excluding this scope effect, global net outflows were USD 7.1 billion, driven by the US and Europe.
However, Europe remains the primary driver of inflows, averaging USD 11.5 billion per quarter between early 2023 and Q3 2025. Total assets under management (AUM) in global ESG funds continued to grow, from USD 2.74 trillion in Q1 2023 to USD 3.735 trillion in Q3 2025, with Europe contributing 85 percent of this total.
SRI reform reshapes French ESG landscape
In France, assets under management (AUM) in labelled funds (SRI, CIES, Relance, Greenfin, Finansol) grew from EUR 581 billion in Q1 2023 to a peak of EUR 662 billion in Q3 2024. A sharp drop in Q4 2024, down 52 percent to EUR 317 billion, was primarily due to the reform of the SRI label, the largest French label.
This 2024 reform bolstered ESG criteria, leading to de-labelling and a decline in the number of funds from 2,763 to 941. Despite the initial drop, AUM in SRI funds remained stable at EUR 618 billion on a like-for-like basis, nearly unchanged from Q3 2024. The gradual adaptation to these new criteria has driven a recovery in labelled assets, rising to EUR 528 billion in the first three quarters of 2025.
Enduring appeal despite the storm
Despite significant market and regulatory challenges, ESG funds demonstrate clear resilience, especially in Europe.
The temporary outflows and de-labelling in France, driven by stricter SRI criteria, reflect a strengthening of standards, not a rejection of sustainable investing.
This adaptation, coupled with renewed interest in green energy, suggests a maturing market capable of weathering adverse conditions.