Morningstar's latest report, released on Thursday, reveals that U.S. sustainable investment funds recorded their first net capital inflow since 2022 during the second quarter, driven by investor interest in power infrastructure and renewable energy sectors. These sustainable funds combine environmental, social, and governance (ESG) criteria with financial returns to screen investments.
During the quarter, U.S. sustainable funds attracted a total net inflow of $3 billion, pushing their total assets under management to a record high of $398 billion. Although ESG investment enthusiasm has cooled somewhat in mainstream market discourse, tensions in Iran and the surge in AI data center construction have drawn significant capital back into the ESG space.
The report's authors noted that the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (ticker: GRID), which focuses on companies involved in grid reinforcement, was the primary beneficiary of these inflows, attracting $3.1 billion in the second quarter. This trend indicates that investors betting on AI are no longer concentrating solely on chip and large model development firms; they are also beginning to allocate capital to the power infrastructure needed to support high-energy-consuming data centers.
Simultaneously, concerns over navigation disruptions in the Strait of Hormuz have pushed up oil and gas prices, encouraging investors to diversify into wind and solar energy stocks. The Renewable Energy ETF (ticker: ENLT) has surged by as much as 89% year-to-date.
While U.S. sustainable funds have ended a streak of 14 consecutive quarters of net outflows, the global market performance is more divided. Europe, the core hub for global sustainable investment funds, also recorded net inflows. However, ESG fund redemptions have increased in Canada, Japan, Australia, New Zealand, and most parts of Asia excluding China, leading to overall capital outflows from those regions.
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