Equities Lead Sustainable Flows into Negative Territory
- Net flows: Investors pulled a net £13m from sustainable funds in Q1 2025, in what looks to be the first negative quarter for UK sustainable funds.
- Equities: Previous years’ rotation from conventional to sustainable funds has ground to a halt, with both in negative territory.
- Equity Global was the best-selling classification (£859m sustainable/£2.09bn conventional).
- Equity US falls to third place, with about one-tenth of flows to the classification going to sustainable funds, in contrast to last year, where they took most money.
- SDR: Net aggregate redemptions to SDR funds over the quarter were £783m.
Sustainable Assets and Flows
by Asset Class
Chart 1: Sustainable Asset Class AUM, 2014 to Q1 2025 (£bn)
Source: LSEG Lipper
UK sustainable assets held in mutual funds and ETFs fell from £260.15bn to £239.25bn (-8.03%) over the quarter, while total UK mutual fund and ETF assets fell by 2.56%.
That figure needs a caveat, however. There is a difference between the current AUM figures for Q4 2025, and what we recorded at the end of the previous quarter: £252.74bn versus £260.15bn, or £7.41bn. If we use current figures, the decline is 5.34%, not 8.03%. Why the difference? There will always be some volatility between reporting periods, but this is larger than one would expect. The Lipper Research sustainability universe is defined as “all SFDR Article 9 funds plus Lipper Responsible Investment Attribute funds reduced to those containing indicative sustainable keywords in the fund name”. The latter is being more tightly regulated and, as a result, we are seeing a significant number of funds drop keywords such as “ESG” or “sustainable” from their names. That seems to be what is driving the distinction between the two figures.
Neither figure—5.34% or 8.03%—is necessarily wrong, but it is important to understand what underpins both.
Over the longer term—since 2019, using current figures—sustainable assets have grown 467%, while total UK fund assets in total have risen from £1.92trn to £2.3trn, or by 120%.
Equity funds make up most sustainable assets, at 70.09%, down from 73.19% the previous quarter, followed by bond (16.22%, up from 14.92%), mixed assets (11.74%, up from 11.08%), and MMFs (11.74%, up from 1.04%). Alternatives and real estate funds make up less than 1% each of sustainable assets. While bond, commodity, MMFs, and real estate funds grew modestly over the quarter, alternatives and equity contracted, with the latter shedding £13.29bn.
The asset mix has changed between now and 2019, when equities stood at 62.78%, mixed asset (20.14%), and bonds (17%). So, rather than sustainable investing diversifying from equities over time, the figures—in the UK at least—show an increasing concentration on this asset class, the past quarter’s contraction notwithstanding.
Chart 2: Five-year quarterly flows, to Q1 2025 (£bn)
Source: LSEG Lipper
Investors pulled a net £13m from sustainable funds in Q1 2025, in what looks to be the first negative quarter for UK sustainable funds, as defined by Lipper Research.
Equity funds faired worst, shedding £392m over the period—their poorest quarter ever. Indeed, it has been mainly equities that ensure sustainable flows stay in positive territory in previous quarters, so this is a considerable shift.
Bond funds (-£154m) and alternatives (-£31m) also suffered outflows.
On the plus side, MMFs (£324m—the largest since Q1 2023), mixed assets (£215m), real estate (£23m), and commodity funds (£0.46m) all saw inflows.
Sustainable versus Conventional
Flows by Asset Class
Chart 3: Asset Class Flows, ESG v Conventional, Q1 2025 (£bn)
Source: LSEG Lipper
Over Q1 2025, sustainable funds saw outflows of £13m, while their conventional equivalents shed £2.14bn. So, despite this being UK sustainability’s first negative quarter, you could reasonably argue that things could have been worse.
There is a considerable amount of black relative to green in chart 3, and that in itself is worthy of note. For example, over 2024, the outflows from conventional equity funds closely mirrored the inflows to their sustainable equivalents (-£10.83bn to £12.05bn). What a difference a quarter makes, with equity funds hit by the worst sustainable outflows (-£392m), although overshadowed by their conventional peers (-£6.87bn). Taken in isolation, it would be easy to see the sustainable flows as collateral damage in the overall redemptions hitting this asset class. But the contrast with 2024 is stark, as we’re no longer seeing the equity conventional-to-sustainable rotation.
MMFs were the best-selling asset class for the quarter (£324m), with their conventional peers selling £7.95bn, thus almost inverting the trend for equities.
Next comes mixed assets, where sustainable funds netted £215m while their conventional peers shed £605m. That’s a reversal of last year’s trend and may mark the end of a sustained negative patch for sustainable mixed-assets funds, which have languished over the past few years as the dominant companies in the space saw performance drop off, followed by asset gathering. It will be interesting to see if this data point becomes a trend and who will be the main beneficiaries.
Sustainable real estate saw a modest gain of £23m in an environment where the asset class overall remains unpopular, with RE conventional funds losing £366m. Similarly, sustainable commodity funds took a modest £0.46m, while their conventional equivalents lost £39m.
On the redemption side, sustainable alternatives saw outflows of £31m in contrast to conventional alternatives’ net inflows of £148m, while sustainable bonds shed £154m as their conventional peers shed £2.36bn.
Sustainable Flows by Classification
Chart 4: Largest Positive Sustainable Flows by LSEG Lipper Global Classification, Q1 2025 (£bn) Versus Conventional Equivalents
Source: LSEG Lipper
In a period of relatively muted flows, Equity Global once more comes to the fore (£859m sustainable/£2.09bn conventional), having previously been squeezed out by Equity US. Interestingly, despite the changing sentiment around US stocks, the top-selling global funds tending to run overweights both to the US and to the Magnificent Seven, and therefore tended to underperform the benchmarks in Q1.
Mixed Asset GBP Conservative seems to be the poster child for the revival of sustainable mixed-assets funds (£532m sustainable/-£190m conventional). This uptick is, to put it mildly, rather narrowly defined, as £528m is to one fund.
Equity US falls down the rankings, from first throughout 2024—when it netted FY £13.5bn and exceeded the entire annual take for sustainable equities by almost £500m—to third, attracting a modest £420m, while conventional Equity US took almost 10-times the amount, at £4.13bn. Sustainable Equity US flows for 2023 were £3.9bn, and conventional flows negative £4.33bn. Appetite for US large caps marched in lockstep with sustainable flows until Q3 2024, when flows were flat despite continuing appetite for US equities, and Q1 2025 has seen this strongly amplified.
Further down the chart, it’s interesting to see a small uptick in sustainable Equity Europe ex UK (£125m) despite the £3bn-plus conventional outflows. Europe investors seeking alternatives to US equities are already making significant allocations, though UK investors have yet to move. Those that have, have been rewarded over Q1, though what happens next given the volatility of geopolitics, is anyone’s guess—you can pay big bucks for a fancy global consultant, or read the entrails of a chicken. The coming months will certainly be interesting.
Chart 5: Largest Negative Sustainable Flows by LSEG Lipper Global Classification, Q1 2025 (£bn) Versus Conventional Equivalents
Source: LSEG Lipper
Despite the positive showing for sustainable real estate overall, Equity Sector Real Estate Global suffers the largest redemptions (-£1.09bn/£10m). That’s down to a large move out of one ETF over the quarter.
Bond Global Corporates LC also feel the pain (-£448m/-£1.97bn). This is mainly attributable to two share classes: one passive ETF, and another private fund.
Despite a relatively strong quarter, Equity UK continues to sell off, whether sustainable (-£317m) or conventional (-£4.58bn).
Active versus Passive
Chart 6: Sustainable Bond (LHS) and Equity (RHS) Active v Passive Asset Class Flows,
Q1 2025 (£bn)
Source: LSEG Lipper
Despite negative overall flows, sustainable passive bonds stayed in the black by £1.73m, while both passive and active equity suffered redemptions over the quarter (-£76m and -£392m, respectively).
Over the past four quarters, passive funds have taken 44.2% of sustainable bond flows and 32.7% of sustainable equity flows.
Flows by Asset Manager
Chart 7: Largest Positive ESG Flows by Promoter, Q1 2025 (£bn)
Source: LSEG Lipper
The chart above looks very different to those of 2024, with the pack shuffled by the reversal in equity flows. Flows to individual leading fund houses are also more muted as a result.
HSBC tops the table, netting £648m, predominantly to MMFs (£324m) and equities (£290m). Second placed UBS (£594m) saw the highest equity inflows (£607m), with Legal & General (£325m) leading on bonds (£145m), and Schroders (£71m) on mixed assets (£179m).
SDR: AUM and Flows
Chart 8: SDR Categories AUM to end Q1 2025 (£bn)
Source: LSEG Lipper
With the FCA’s SDR just a few months old, LSEG Lipper records £27.33bn of assets in these funds: Sustainability Focus, £22.33bn (82.3%); Sustainability Impact, £2.94bn (10.9%); Sustainability Improvers, £1.04bn (3.8%); and Sustainability Mixed Goals, £0.81bn (3%).
Chart 9: SDR Categories Net Flows by Asset Class, Q1 2025 (£m)
Source: LSEG Lipper
Net aggregate redemptions to SDR funds over the quarter were £783m—considerably larger than for Lipper Research’s sustainable universe for the UK despite the fund set being much smaller. Sustainability Focus funds suffered worst (-£597m: bonds, -£24m; equity -£445m; mixed assets, -£128m).
Sustainability Impact funds saw net outflows of £165m (bonds, -£0.42m; equity, -£153m; and real estate, -£12m).
Sustainability Improvers’ redemptions of £59m were split (equity, -£34m; and mixed assets, -£26m).
Sustainability Mixed Goals saw inflows of £39m, all to mixed-assets funds.
Note that this report has narrowed its focus from broad ESG funds—those which indicate some form of ESG strategy in their fund documentation—to a smaller set of sustainable funds, defined as all SFDR Article 9 funds plus Lipper Responsible Investment Attribute funds reduced to those containing indicative sustainable keywords in the fund name.
