How attractive is sustainable investing, worldwide?
An 18-page report on what sustainable investing has paid investors worldwide. It compares ESG stock indices, clean-energy stocks and green bonds with the market, and reviews money flows, disclosure and assurance rules, and how a green bond works.
Sustainable funds invest on environmental, social and governance (ESG) criteria. They hold a record $4.2 trillion and beat traditional funds, says Morgan Stanley Growth of $100 invested in December 2018 at each half-year's median fund return, as calculated by Morgan Stanley $180 Sustainable fund assets Sustainable funds US$ trillion, end of each half-year $171 4.2 $160 Traditional funds $159 $140 1.5 $120 Jun 2019 Jun 2026 2.9x $100 Dec 2018 growth in sustainable fund assets, June 2019 to June 2026 Dec 2020 Dec 2022 Dec 2024 Jun 2026 Sustainable funds are those whose prospectus makes sustainability, impact or ESG their focus (Morningstar's classification). 4.9% vs 4.0% Each line chains the median return of all funds in the class for each half-year, in US dollars. It is not the record of any single fund. median return in the first half of 2026, sustainable vs traditional funds Sources: Morgan Stanley Institute for Sustainable Investing (Sep 2026). Morgan Stanley's analysis of Morningstar data on funds worldwide; 'sustainable' is Morningstar's classification 02
IS Sustainable investing works in five ways, from excluding companies to engaging with them and investing for impact The five approaches defined by GSIA, the CFA Institute and PRI (2023), with an example of each APPROACH WHAT IT DOES EXAMPLE 1 Screening Leaves out companies or industries that fail set criteria Norway's sovereign wealth fund excluded 52 coal companies in April 2016 2 ESG integration Uses ESG information alongside financial analysis in investment decisions Morningstar does not count funds that only do this as sustainable funds 3 Thematic investing Buys companies tied to a theme such as clean energy iShares Global Clean Energy ETF (ICLN), launched in 2008 4 Stewardship Uses shareholder rights and dialogue to change how companies behave In 2024 Norway's fund started a dialogue of up to two years with Bolloré on human-rights risks at palm-oil plantations in Cameroon, instead of excluding it 5 Impact investing Aims at a measurable social or environmental result alongside a financial return More than 3,907 organisations manage $1.571 trillion (GIIN, 2024) Sources: GSIA, CFA Institute, PRI (2023) · NBIM (2016) · Morningstar (Feb 2026) · iShares ICLN · NBIM (2024) · GIIN (2024) 03
BUY What investors actually buy: ESG stock indices, clean-energy stocks and green bonds The three products this report measures, with an example of each ESG stock indices Clean-energy stocks Green bonds Keep the companies that score well on environmental, social and governance criteria Shares of companies in one theme, such as renewable power and power grids Bonds whose proceeds may only fund environmental projects EXAMPLE EXAMPLE EXAMPLE MSCI ACWI Selection iShares Global Clean Energy ETF (ICLN) European Investment Bank, July 2007 Companies: 1,054 of 2,414 Utilities: 41% Issued the first green bond. The main uses of proceeds today are renewable energy, clean transport and energy efficiency. Market value: 53% of the full index Industrials: 35% Drawn from MSCI ACWI, Sep 2026. Another ESG index, MSCI World SRI, holds 368 companies with outstanding ESG ratings and excludes products with negative social or environmental impact. Information technology: 22% $2.1 billion in assets (Oct 2026). Its index holds 102 companies; bars show its top three sectors, Sep 2026 Sources: MSCI ACWI Selection · MSCI World SRI · iShares ICLN · S&P DJI · ICE (Feb 2026) · EIB 04
GREEN BOND WORKS A green bond is an ordinary bond with three additions: proceeds limited to green projects, an outside review, and reports to investors Who takes part, and how money and information move External reviewer Reviews the plan before issue, and the allocation after Audit firms, certifiers; use is recommended Purchase price Allocated to green projects Proceeds Four core components (Green Bond Principles) 1 Use of proceeds Eligible green projects with clear environmental benefits 2 Project evaluation and selection Investors Arranger Issuer Green projects Interest and principal 3 Management of proceeds Track the money separately and reconcile it with allocations Reports on where the money went, how much, and the expected impact Pension funds, insurers, asset managers, individuals Mainly securities firms: set the terms, underwrite and sell Tell investors the goals and how projects are chosen Companies, financial institutions, local governments Renewable energy, energy efficiency, clean transport and more 4 Reporting At least yearly until fully allocated: projects, amounts, expected impact The issuer promises interest and principal, as on any bond. The principles recommend an outside review of fit with the four components before issue, and of the allocation after. Money Information Diagram: E9 Technologies. Sources: Ministry of the Environment (scheme) · Ministry of the Environment (GBP summary) · Ministry of the Environment (external review) · ICMA (GBP 2025) 05
Published estimates of sustainable investing range from about $4 trillion to $30 trillion, depending on definition, coverage and year Published assets by definition, coverage and year, US$ trillion Definitions of sustainable investing Funds whose prospectus puts ESG at the centre (Morningstar) 3.73 Jun 2026; open-end funds and ETFs Same classification, wider set of funds (Morgan Stanley) 4.24 Jun 2026; includes closed-end funds Funds using any responsible approach (GSIA, 2024 review) 16.7 Funds only, from Morningstar filings: about 30% of the investable market All assets managed with sustainable approaches (GSIA, 2022 review) 30.3 Surveys incl. segregated mandates and asset owners: about 58% of the market Other measures Labelled bonds issued to date, cumulative (Climate Bonds Initiative) 8.1 To end-2025; includes bonds already repaid Impact investing (GIIN) 1.57 3,907 organisations; 2024 report 0 Sources: Morningstar (Q2 2026) · Morgan Stanley (Sep 2026) · GSIA (2023) · GSIA (2024 review) · Climate Bonds Initiative (Mar 2026) · GIIN (2024) 10 20 30 06
SINCE WHEN Europe holds 86% of sustainable fund assets; sustainable funds are about a fifth of Europe's funds but 1% of America's Sustainable fund assets by region at the end of 2025, and milestones of the market Share of global sustainable fund assets Milestones Europe 86% 2007 European Investment Bank issues the first green bond 2008 iShares Global Clean Energy ETF (ICLN) is launched 2016 Norway's sovereign wealth fund excludes 52 coal companies 2021 EU begins issuing NextGenerationEU green bonds 2022 Governments adopt the Kunming-Montreal Global Biodiversity Framework 2024 EU guidelines on ESG terms in fund names (ESMA) 2025 Sustainable funds' first year of net outflows US 9%, rest of the world 5% Sustainable funds as a share of all funds in the region about 20% Europe US 1% Inside Europe's sustainable funds, share of assets (Jun 2026) 65% 22% 13% 33% Equity Bonds Allocation and other in index funds Sources: Morningstar (Feb 2026) · Morningstar (Q2 2026) · EIB · iShares · NBIM · European Commission · CBD · ESMA 07
FOR GROWTH Supporters say new rules and targets will bring money into sustainable investing What each group says, and the figure it cites WHO CLAIM Governments UN Convention on Biological Diversity Halt and reverse nature loss by 2030, and mobilise at least $200 billion a year for it, naming green bonds and biodiversity credits Standard setter More than 45 jurisdictions are using the ISSB sustainability disclosure standards 45+ Up to 30% of NextGenerationEU will be funded with green bonds, expected to make the Commission the largest green bond issuer in the world 30% 86% expect the sustainable share of their portfolios to rise in the next two years (664 asset owners, Aug-Sep 2025) 86% IFRS Foundation Issuer European Commission Asset owners Morgan Stanley survey Index provider MSCI Companies with the best ESG ratings raised capital more cheaply: 6.8% vs 7.9% for the worst rated, 2015-2024 Sources: CBD Target 19 · IFRS Foundation (Aug 2026) · European Commission · Morgan Stanley (Nov 2025) · MSCI (Oct 2026) FIGURE $200bn -1.1 pts 08
MANDATORY? What has become mandatory is mostly large companies' climate disclosure; nature is reported where material, and the ISSB has no nature standard yet Who must report, by jurisdiction, and where nature reporting stands Sustainability and climate disclosure ISSB standards More than 45 jurisdictions are using them (Aug 2026); each decides which companies must apply them Nature Biodiversity framework, Target 15 Asks governments to ensure that large companies disclose their nature-related risks. It binds governments, not companies. European Union After the Dec 2025 deal, only companies with over 1,000 employees and over €450 million in turnover EU Its reporting standards include one on biodiversity and ecosystems (ESRS E4); companies in scope report it where it is material United States No federal requirement in force: the SEC's 2024 climate rule is stayed, and in March 2025 the SEC stopped defending it in court TNFD 733 organisations in 56 countries have committed to report, voluntarily Japan FSA working group roadmap: Prime Market companies with ¥3 trillion or more in market value (average of the last five year-ends) from the year ending Mar 2027; ¥1-3 trillion from March 2028 ISSB Material nature-related information already falls under IFRS S1. Nature requirements will be proposed as a practice statement; exposure draft due October 2026 Sources: IFRS Foundation (Aug 2026) · European Parliament (Dec 2025) · SEC (Mar 2025) · FSA (Jan 2026) · CBD Target 15 · EUR-Lex (ESRS) · TNFD · IFRS Foundation (May 2026) 09
MANDATORY? Assurance of the disclosures is becoming mandatory too, and the assurance services market is forecast to grow 18% a year Share of large G20 companies with assurance on at least some sustainability disclosures Mandates 100% 69% 75% EU The auditor gives an opinion on the sustainability statement based on limited assurance (CSRD, 2022) Japan Under the FSA roadmap, third-party assurance from the year ending March 2028 for Prime Market companies with ¥3 trillion or more in average market value 73% 51% 50% 25% Assurance services market Over $1.8 billion 0% 2019 2022 2023 About 1,400 companies in 22 jurisdictions. Most assurance is limited in scope; greenhouse gas figures are the most assured. Sources: IFAC (May 2025) · EUR-Lex (CSRD) · FSA (Jan 2026) · Verdantix (Mar 2026) in 2025, forecast to grow 18% a year to 2031 (Verdantix) The growth is in audit and assurance services, which investors do not buy directly. 10
AND PUBLIC MONEY The EU has set rules for green products; the US, meanwhile, ended tax credits for electric vehicles and home clean energy in 2025 Rules for green products in the EU, and public funding for the transition in the EU, the US and Japan What can be sold as green Public money for the transition EU Green Bond Standard EU Voluntary. Proceeds must fund activities that meet the EU taxonomy, and ESMA supervises the external reviewers. Raises part of NextGenerationEU with green bonds; the first, in October 2021, raised €12 billion over 15 years ESMA fund-name guidelines (2024) US A fund with ESG or sustainability terms in its name must have at least 80% of its investments meeting those characteristics, and apply exclusion lists. The July 2025 tax law ended clean-vehicle credits for vehicles bought after September 30, 2025, and home clean-energy credits after 2025 Japan Climate Transition Bonds sold at auction: ¥1.2 trillion in fiscal 2025, ¥1.0 trillion planned for fiscal 2026 Sources: European Commission (EU GBS) · ESMA (May 2024) · European Commission (NGEU) · IRS · Ministry of Finance (Dec 2025) 11
how attractive sustainable investing is for an investor WHAT TO CHECK WHY IT MATTERS TO AN INVESTOR WHAT WE MEASURE 1 Is money flowing in? New money supports prices; the claims rest on growing demand. Transition investment, labelled bond issuance, net flows into sustainable funds 13 2 Do ESG stocks and sustainable funds keep up? Choosing on ESG leaves out part of the market; Morgan Stanley says the funds still win. MSCI ESG indices against their parent indices; median fund returns 14 3 Did climate and clean-energy investments pay? These products bet directly on the transition that the policies promote. MSCI climate index and S&P clean-energy index, 2021-2025 15 4 Do green bonds pay more than ordinary bonds? A lower yield is income the investor gives up. Yield gap estimates from five studies 16 Approach: E9 Technologies. PAGE 12
| IS MONEY FLOWING IN? Transition investment hit a record $2.3 trillion in 2025, the year sustainable funds had their first net outflow; inflows resumed in 2026 Three measures of money going into sustainability, US$ billion unless stated Energy-transition investment Labelled bond issuance Net flows into sustainable funds Renewables, grids, electric transport and more (BloombergNEF) Green, social, sustainability-linked and other labelled bonds (ICE) Two counts of the same fund classification; Morgan Stanley covers more funds 1,241 $2.3 trillion 1,080 in 2025, a record, up 8% 992 1,095 +38 +38 995 +4.5 Annual growth slowed from 27% in 2021 to 8% in 2025. 680 372 -62.8 -84 2024 Morningstar 2019 20 21 22 23 24 H1 2026 Morgan Stanley 2025 About $1.1 trillion in 2025, near the 2024 level and below the 2021 peak. Sources: BloombergNEF · ICE (Feb 2026) · Morningstar (Feb 2026) · Morningstar (Q2 2026) · Morgan Stanley (Mar 2026) · Morgan Stanley (Sep 2026) 2025 Much of the outflow in the second half of 2025 was UK institutions moving money from pooled funds into their own mandates, which fund data do not capture. 13
| DO ESG STOCKS AND SUSTAINABLE FUNDS KEEP UP? ESG-selected world stocks earned what the market did, within 0.3 points a year, and sustainable funds beat traditional funds from 2018 (+71% vs +59%) Growth of $100 from the end of 2013 in MSCI ACWI Selection (ESG-selected) and MSCI ACWI, net returns in US dollars $350 ESG-selected $312 $300 Market $308 COMPARISON MSCI ACWI Selection vs ACWI ESG OR SUSTAINABLE MARKET OR TRADITIONAL 9.95% 9.83% 11.62% 11.88% +71% +59% 2014-2025, a year $250 MSCI World SRI vs World $200 2012-2025, a year $150 Fund medians Morgan Stanley, Dec 2018-Jun 2026, total $100 2013 2015 2017 2019 2021 2023 2025 Gap each year, in points: ESG-selected minus market +2.3 +0.7 +0.8 +0.1 0.0 +0.9 +0.6 0.0 -0.2 Academic reviews of 1,141 papers and of 153 studies: on average, ESG investing performs no differently from conventional investing. -0.6 -0.9 -1.6 2014 For the first half of 2026 (4.9% vs 4.0%), Morgan Stanley credits the larger share of equity funds (56% vs 41%). By asset class: equity 9.0% vs 8.6%, bonds -1.3% vs 1.3%, other 2.5% vs 3.0%. 2025 Sources: MSCI ACWI Selection · MSCI ACWI · MSCI World SRI · MSCI World · Morgan Stanley (Sep 2026) · Atz et al. (2023) · Hornuf and Yüksel (2022). Index returns are calendar-year, net, in US dollars 14
| DID CLIMATE AND CLEAN-ENERGY INVESTMENTS PAY? Indices narrowed to climate or clean energy trailed the market in 2021-2025: clean-energy stocks fell 37% while world stocks rose 70% Calendar-year net returns in US dollars, 2021-2025 +50% +47 +25% +22 +22 +22 +19 +19 Five years, 2021-2025 Total A year World stocks +70% +11.19% Climate index +61% +10.02% Clean energy -37% -8.79% +20 +17 +17 0% -5 Range of annual returns, 2021-2025 -18 -25% -23 Clean energy -26% to +47%; world stocks -18% to +22% -20 -21 -26 What the indices hold -50% 2021 2022 MSCI ACWI (world stocks) 2023 2024 2025 MSCI ACWI Climate Paris Aligned Climate index: built to the EU Paris-aligned benchmark rules, which exclude some fossil-fuel companies, require half the parent index's carbon intensity and a further 7% cut each year, and keep every sector; 603 companies. Clean energy: the index the iShares ICLN ETF tracks; 102 companies. World index: 2,414 (Sep 2026). S&P Global Clean Energy Transition Sources: MSCI ACWI · MSCI ACWI Climate Paris Aligned · MSCI (PAB rules) · iShares ICLN (benchmark returns) · S&P DJI. Climate index launched Oct 2020; earlier years are back-tested and not used 15
| DO GREEN BONDS PAY MORE THAN ORDINARY BONDS? Green bonds yield the same as comparable bonds or less: up to about 0.16 points for the label alone, more for certified bonds and top environmental scorers How much lower a green bond yields than a matched ordinary bond, in basis points (1 bp = 0.01 percentage point) US municipal bonds, same issuer and day 0.45 Larcker and Watts; 640 pairs Zerbib (2019) 2 Cited by ECB Working Paper 3176 Euro-area issuers 4; 5.3 with external review ECB Working Paper 2728 Baker et al. (2022) 5-9 Cited by ECB Working Paper 3176 New issues, green label alone 16 ECB Working Paper 3176 New issues, certified green bonds 25 ECB Working Paper 3176; the label effect nearly doubles for issuers with top-tier environmental scores 0 5 10 15 basis points 20 25 30 For an investor: a yield 16 bp lower on $1 million of bonds is worth about $1,600 a year. Sources: Stanford GSB (May 2019) · ECB WP 2728 (2022) · ECB WP 3176 (2026). Each study matches green bonds with ordinary bonds of the same issuer or similar terms 16
earned as much as the market or slightly more; stocks narrowed to clean-energy companies, however, lost heavily in 2021-2025 What the four checks found 1 Money flowing in Transition investment a record $2.3 trillion in 2025; labelled bonds about $1.1 trillion a year; sustainable funds -$84 billion in 2025, +$4.5 billion in the first half of 2026 2 ESG stocks and funds ESG world index 9.95% a year vs 9.83% for the market (2014-2025); sustainable funds +71% vs +59% (Dec 2018-Jun 2026) 3 Climate and clean energy Climate index 10.02% a year vs 11.19%; clean energy -37% vs +70% in total (2021-2025) 4 Green bonds Yield 0 to 0.16 points below comparable bonds for the green label alone; about 0.25 for certified green bonds For an investor Market-level returns, plus a hedge against climate risk When concern about climate change rose, green stocks beat the rest (Pástor, Stambaugh and Taylor). Sources: Pástor, Stambaugh and Taylor (2022). Other figures from pages 13-16 17
returns Funds and flows Definitions Calendar-year net total returns in US dollars from the MSCI index pages (ACWI, ACWI Selection, World, World SRI, ACWI Climate Paris Aligned; data to Oct 14, 2026) and, for the S&P Global Clean Energy Transition Index, the benchmark returns published by iShares for ICLN. Comparisons start after each ESG index was launched: ACWI Selection in June 2013 (from 2014), Climate Paris Aligned in October 2020 (from 2021). World SRI was launched in 2011. Returns a year are geometric means; growth of $100 compounds the calendar-year returns. Morningstar counts a fund as sustainable when its prospectus makes sustainability, impact or ESG its focus; funds that only integrate ESG or apply a few exclusions are left out. Its flow data cover open-end funds and ETFs and exclude China's latest quarter; money moved into segregated mandates shows as an outflow. Morgan Stanley applies the same classification to a wider set that includes closed-end funds, and reports the median return of each class for each half-year. The five approaches (GSIA, CFA Institute and PRI, 2023): screening, ESG integration, thematic investing, stewardship and impact investing. Labelled bonds: green, social, sustainability, sustainability-linked and transition bonds. ICE counts all of them across bond types; the Climate Bonds Initiative total is cumulative issuance recorded to the end of 2025, of which $6.8 trillion meets its own criteria. Greenium: how much lower a green bond yields than a matched ordinary bond. Data from public pages and reports; no paid data used. Sources checked October 15, 2026. Analysis: E9 Technologies. 18
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