Sustainable Reality

Sustainable funds deliver strong returns in 1H 2025;

Flows positive but tracking below prior years
AUM FLOWS PERFORMANCE FUND NAMING RESTRICTION SCREENING METHODOLOGY AND DISCLOSURES

Key takeaways for 1H 2025

1 Sustainable funds’ AUM up to $3.92 trillion

Assets under management (AUM) in Sustainable funds globally reached a new high
of $3.92 trillion at the end of June 2025, up 11.5% on December 2024 according to
Morningstar data. Sustainable funds make up 6.7% of total AUM, just ahead of 6.6% at
end of 2024 but down from a high of 7.2% in June 2023, as Traditional funds have seen
stronger net inflows.

2 Sustainable funds outperform by more than three points

The majority of the growth in AUM during 1H 25 was due to performance, with
Sustainable funds generating median returns of 12.5%, outperforming Traditional funds
at +9.2%. Reversing the 2H 24 pattern, the key driver of the 1H 25 outperformance was
Sustainable funds’ greater exposure to global and Europe investment areas, which saw
stronger returns than Americas and APAC, especially in fixed income. As the Sustainable
Reality series shows returns in US dollar terms, they may have been influenced by
currency volatility during the period.

3 Flows positive, but tracking below prior years

First half inflows to Sustainable funds were $16.0 billion, with small outflows in the first
quarter more than offset in the second. However, year to date, 2025 flows are tracking
below prior years: 2022 and 2023 both totalled over $100bn on a full year basis, with
2024 now restated to $80.6 billion. European funds drove the inflows, both in terms
of fund domicile and fund investment area, while there were small outflows in the
Americas. Traditional fund flows remain ahead, at +2.1% of prior year-end AUM in 1H 25.

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About the Sustainable Reality series

TRACKING AUM, FLOWS AND PERFORMANCE FOR SUSTAINABLE FUNDS
Sustainable Reality is a long running series from Morgan Stanley’s Institute for Sustainable Investing.
It uses Morningstar data to track AUM, flows and performance for Sustainable funds in comparison to
Traditional funds across a universe of 99,000 global funds.

TERMINOLOGY MEDIAN RETURNS METHODOLOGY

“Sustainable” and “Traditional” use We refer to median returns, both because For the full methodology, see page 20.
Morningstar’s definitions. of the very wide range of potential
outcomes common for investment funds,
but also to reflect the likelihood of an
individual investor selecting a fund that
achieves the return. Returns are shown in
USD terms.

CONTACT US

For any questions related to the report, please reach out to the Institute for Sustainable Investing team at
[email protected].

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TABLE OF CONTENTS

1 AUM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2 Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

3 Performance . . . . . . . . . . . . . . . . . . . . . . . . . 10

4 Fund Naming. . . . . . . . . . . . . . . . . . . . . . . . . . 17

5 Restriction Screening. . . . . . . . . . . . . . 18

6 Methodology and Disclosures . . . 20

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AUM in Sustainable funds rose to $3.92 trillion

At the end of June 2025, Sustainable funds’ AUM reached a new absolute high of $3.92 trillion (+11.5% on December 2024, and +14.3% year over
year, mostly driven by returns). This represents 6.7% of total AUM, down from 7.2% at the end of June 2023 but a little ahead of December 2024 at
6.6%. The decline as a proportion of overall AUM over the past two years mostly reflects stronger flows into the Traditional fund universe.

Sustainable AUM, USDbn

7.2%
$5,000 8.0%

$4,500 6.7%
$4,000
6.0%
$3,500

$3,000

$2,500 4.0%

$2,000

$1,500
2.0%
$1,000

$500

$0 0.0%
Jun ’19 Dec ’19 Jun ’20 Dec ’20 Jun ’21 Dec ’21 Jun ’22 Dec ’22 Jun ’23 Dec ’23 Jun ’24 Dec ’24 Jun ’25

Sustainable AUM Sustainable as % of Total

Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of August 6, 2025. Note: that all datapoints are restated based on the current period classification,
which can result in small changes to prior period numbers.

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Sustainable fund flows were positive in 1H 2025,

but are tracking below prior years
Overall, Sustainable funds saw inflows of $16.0 billion during 1H 25, or Traditional fund flows continue to outpace Sustainable peers, with
+0.5% of prior year-end AUM. The first quarter saw small outflows, at 1H 25 inflows at +2.1% of prior year-end AUM maintaining the pace
-$3.2 billion, more than offset by inflows of $19.3 billion in the second seen throughout 2024.
quarter.
Inflows into Sustainable funds remain notably lower than in recent
years, with 2022 and 2023 full-year inflows both over $100 billion,
and 2024 (following some revisions higher*) at $80.6 billion in the
second quarter.

Sustainable flows positive but below prior years Traditional funds maintained the stronger 2024 trend

Sustainable Quarterly Net Flows Traditional Quarterly Net Flows

(Non-Cumulative), USDbn (Non-Cumulative), USDbn

80 4.0% 800 +2.1% 2.0%

60 3.0%
600 1.5%

40 +0.5% 2.0%
400 1.0%
20 1.0%
200 0.5%
0 0.0%

-20 -1.0% 0 0.0%

1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24 1Q25 2Q25 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24 1Q25 2Q25

Sustainable Quarterly Net Flows Traditional Quarterly Net Flows

Quarterly Flow as % of Prior Year-End AUM Quarterly Flow as % of Prior Year-End AUM

Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of August 6, 2025.
* The prior edition of Sustainable Reality, based on data as of February 4, 2025, put FY 2024 flows at $54.7 billion.

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By fund domicile, European funds drove the weakness in 1Q

On an absolute basis, Europe-domiciled Sustainable funds Europe-domiciled flows dominated in absolute terms
continue to dominate, with inflows of $24.7 billion for 1H 25
compared to $2.7 billion for Asia and outflows of $11.3 billion Sustainable Fund Quarterly Net Flows by
for North America. However, as in 2Q 24, the overall weakness in Region of Domicile, USDbn
Sustainable fund flows in 1Q 25 was driven by Europe-domiciled
funds with inflows of just $0.9 billion, well below the ~$20 billion 100
quarterly average over the past two years. 80
Sustainable funds domiciled in North America have reported 60
outflows for eleven quarters, starting in 4Q 22.
40
Relative to prior year-end AUM, Asia saw the strongest inflows for
1H 25, at +3.9%, ahead of Europe at +0.8% and North America at 20
-3.3%.
0

-20
1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24 1Q25 2Q25
Asia inflows were strongest relative to AUM
1H 25 Net Flows as a % of Prior Year-End AUM North America Europe Asia South America Africa
FUNDS

Sustainable 0.5%
ALL

Traditional 2.1% 88% of AUM in Sustainable funds is Europe-domiciled

0.8% Sustainable AUM by Domicile, Jun 25

Europe
3.4%
REGION OF
FUNDS BY

DOMICILE

3%
North America -3.3%
1.2%
9% 88%
Asia 2.6%
3.9%
0.1%

Sustainable Funds Traditional Funds North America Europe Asia Other*

Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of August 6, 2025.
* Other includes South America and Africa, which account for 0.09%/0.01% of AUM respectively. Note that a fund can be domiciled in one region but invest globally or in another regions.
Investment area refers to the latter.

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By fund investment area, Europe saw the strongest flows

Sustainable funds that invest in Europe had the strongest flows Flows to funds investing in the Americas picked up in Q4
in 1H 25, both in absolute terms ($24.8 billion) and relative
to AUM (+2.2% of prior year-end AUM). Global and APAC Sustainable Fund Quarterly Net Flows
Sustainable funds both saw inflows, at $4.0 billion and $2.3 billion by Investment Area, USDbn
respectively.
100
Americas Sustainable funds saw outflows for the first time since
1Q 20, at $12.2 billion or +2.2% of prior year-end AUM; Traditional 80
funds in the Americas also saw small outflows. 60

40
Relative to AUM, Americas saw the strongest inflows 20

1H 25 Net Flows as a % of Prior Year-End AUM 0

-20
1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24 1Q25 2Q25
FUNDS

Sustainable 0.5%
ALL

Traditional 2.1%

0.3% Global Americas Europe APAC Middle East & Africa Not Disclosed
Global
2.4%
Europe 2.2%
INVESTMENT AREA

3.8%
>75% of Sustainable funds invest globally or in Europe
Americas -2.2%
FUNDS BY

-0.4%
Sustainable AUM by Investment Area, Jun 25
Asia Pacific 1.7%
4.7%
Middle East -0.6% 4%
& Africa 1.1%
-1.3% 42% 14% 34% 6%
Not disclosed
6.6%

Sustainable Funds Traditional Funds Global Americas Europe APAC Middle East & Africa* Not Disclosed

Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of August 6, 2025.
* Middle East and Africa accounts for 0.003% of AUM. Note that a fund can be domiciled in one region but invest globally or in other regions. Investment area refers to the latter.

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Flows to Article 8 and Article 9 funds

During 1H 25, Article 8 funds saw inflows of $203.4 billion, or +2.6% Article 9 funds saw outflows of -$8.7 billion in 1H 25, -2.5% of prior
of prior year-end AUM. This was mostly driven by Article 8 funds year-end AUM. This marks seven straight quarters of outflows for
classified as Traditional by Morningstar, while Article 8 funds classified Article 9 funds, although 2Q 25 saw some recovery.
as Sustainable accounted for $31.5 billion of the total (+1.5% of prior
year-end AUM).

Article 8 Fund Flows Article 9 Fund Flows

Article 8 Quarterly Net Flows (Non-Cumulative) Article 9 Quarterly Net Flows (Non-Cumulative)

200 4.0% 6 3.0%

4 2.0%
150
+2.6% 3.0%
2 -2.5% 1.0%
100 2.0%
0 0.0%

-2 -1.0%
50 1.0%

-4 -2.0%
0 0.0%
-6 -3.0%

-50 -1.0% -8 -4.0%

1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24 1Q25 2Q25 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24 1Q25 2Q25

Article 8 - Sustainable Article 8 - Traditional Article 9

Article 8 as % of Prior Year-End AUM Article 9 as % of Prior Year-End AUM

Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of August 6, 2025.

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Sustainable funds median return of +12.5% strongly

outperformed traditional peers
1H 25 was the strongest period of outperformance for Sustainable funds since our data starts in 2019, with a median return of +12.5% compared
to +9.2% for Traditional peers. As in 2H 24, this was primarily driven by geographic differences. Sustainable funds over-index to Global and
Europe investment regions, which had the strongest returns in 1H 25, reversing the 2H 24 dynamic where weak returns in these regions drove
underperformance for Sustainable funds. However, Sustainable funds also outperformed within most regions, and across all asset classes.

The median return for Sustainable funds strongly outperformed that of Traditional peers in 1H 25
Median Return—Sustainable vs. Traditional Funds

25%
20%
15% 12.5%
10% 9.2%
5%
0%
1H19 2H19 1H20 2H20 1H21 2H21 1H22 2H22 1H23 2H23 1H24 2H24 1H25
-5%
-10%
-15%
-20%
1H19 2H19 1H20 2H20 1H21 2H21 1H22 2H22 1H23 2H23 1H24 2H24 1H25
-25%
11.4% 5.2% -3.7% 20.0% 6.7% 1.0% -20.1% 1.8% 6.9% 5.3% 1.7% 0.4% 12.5%
9.9% 4.4% -3.5% 18.5% 5.2% 0.6% -15.4% 0.4% 3.8% 4.7% 1.1% 1.7% 9.2%
157 76 -21 152 153 38 -466 143 305 65 59 -127 328
bps bps bps bps bps bps bps bps bps bps bps bps bps

Sustainable Funds Traditional Funds Difference Between Sustainable Funds and Traditional Funds (bps)

Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of August 6, 2025.

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Downside deviation and long-term returns

Downside deviation is a measure of the likelihood of negative $100 invested in Dec 2018 would be $154 today,
returns in a set of funds in the period. A lower number means a at median Sustainable fund returns
higher likelihood of negative returns against a chosen benchmark,
here the S&P 500. For 1H 25, downside deviation was -4.5% for Long-Term Performance
(December 2018 = $100)
Sustainable Equity funds and -5.5% for Traditional Equity funds,
meaning that Traditional funds had greater potential for relative $160
$150
$154
losses. $140 $145
$130
$120
$110
$100
Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun
’18 ’19 ’19 ’20 ’20 ’21 ’21 ’22 ’22 ’23 ’23 ’24 ’24 ’25

Sustainable Funds Traditional Funds

Downside deviation measures the likelihood of negative returns against a chosen benchmark
Downside Deviation, Equity Funds
0.0%

-5.0%

-10.0%

-15.0%

-20.0%
Sustainable Traditional Sustainable Traditional Sustainable Traditional Sustainable Traditional Sustainable Traditional Sustainable Traditional Sustainable Traditional

1H22 2H22 1H23 2H23 1H24 2H24 1H25

25th Percentile Median 75th Percentile

Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of August 6, 2025. Past performance is no guarantee of future results.

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Sustainable funds skew to global and Europe investment

areas drove most of the overall outperformance in 1H 2025
Sustainable funds have over-indexed to Global and Europe investment Sustainable funds also outperformed in Americas (by 65bps) and
areas for some time. Prior to 2024, this was not a major driver of in APAC (by 403bps), but these regions did not perform as strongly
performance relative to Traditional funds*. overall. Greater exposure to the regions with double-digit returns
was the main driver of the whole Sustainable fund universe’s
Almost half of Sustainable funds invest globally, where 1H 25 returns
outperformance.
of 11.6% were outpaced by Traditional peers at 12.5%. Europe makes
up another quarter of the universe, where Sustainable fund returns of This reverses the 2H 24 dynamic, when weak returns for Global
17.2% outperformed by 115bps. and Europe funds meant that Sustainable funds underperformed
Traditional peers. As the Sustainable Reality series shows returns in
US dollar terms, currency volatility may also have had an influence.

Global and Europe had the strongest returns Sustainable funds over-index to Global and Europe
1H 25 Median Return by Investment Region 1H 25 Split of Fund Count by Investment Region

21.7% 14% 20%

11%
17.2% 6%
16.1%
29%
12.5% 12.7% 24%
11.6%
9%
8.5% 8.7%
7.2% 13%
4.6% 4.0% 4.5% 46%
28%

Global Europe Americas APAC Middle East Not Sustainable Traditional

& Africa Disclosed

Sustainable Funds Traditional Funds Global Europe Americas APAC Middle East & Africa Not Disclosed

Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of August 6, 2025. Note: bps stands for basis points; 10 bps is 0.1%.
*Generally, stronger returns in Americas were offset by weaker returns in APAC.

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Outperformance continues across asset classes

In 1H 25, Sustainable funds outperformed across all asset classes: Sustainable funds were relatively strongest in fixed
Equities: Sustainable funds outperformed by 83bps with a median income
return of +11.1% ahead of Traditional equity funds at +10.2%.
1H 25 Median Return by Asset Type
Fixed income: Sustainable funds performed strongly at
+14.0%, more than 900bps ahead of Traditional peers at +4.8%. 14.0%
13.2%
Outperformance was particularly strong in short and medium 11.1%
10.2% 10.3%
duration funds averaging BBB credit ratings*. It was also influenced
by investment area performance, as both Sustainable and
4.8%
Traditional fixed income funds invested globally and Europe
performed much more strongly than those invested in Americas
and APAC, as before with currency volatility potentially also
Equity Fixed Other*
playing a role. Income

“Other” funds: (multi-asset, property, commodities and Sustainable Funds Traditional Funds
alternatives) Sustainable funds generated median returns of
+13.2%, outperforming +10.3% for Traditional funds.

Split of Fund Count by Asset Class, 1H25

Sustainable 57% 23% 20%

Traditional 40% 27% 33%

Equity Fixed Income Other

Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of August 6, 2025. * See p. 16 for returns by fixed income style.

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Analyzing performance for Europe-domiciled funds

Europe-domiciled Sustainable funds delivered a median return of 13.7% Half of Europe-domiciled AUM is classified as Article 8 (50% of total
in 1H 25, modestly underperforming Traditional peers at 14.2%. Article Europe AUM) or Article 9 (2% of total), with the remainder under Article 6.
8 funds had a median return of +14.5%, with Article 9 median return at
All Article 9 AUM, and 27% of Article 8 AUM, are classified as
+12.2%.
“Sustainable” by Morningstar. Overall, 19% of Europe-domiciled AUM
fall under Morningstar’s Sustainable classification.

1H 25 median return by SFDR classification Europe domiciled AUM, Jun 25

14.5% 13.7% 14.2% 2%

12.2% Article 9 14%
Article 8 + M*
Sustainable

47%
Other Europe
37%
Article 8 + M*
Article 8 Article 9 Europe Europe Traditional
Sustainable Traditional

The EU’s Sustainable Finance Disclosure Regulation (SFDR) sets out mandatory ESG
disclosure requirements for asset managers with the goal of creating more transparency
about Sustainable investment strategies. According to the SFDR’s classification system,
which went into full effect on Jan. 1, 2023, a fund is either classified as Article 6 (funds
without a sustainability scope), Article 8 (funds that promote environmental or social
characteristics) or Article 9 (funds with Sustainable investment as their primary objective).

Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of August 6, 2025.

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92% of Sustainable funds had positive returns in 1H 2025

A larger proportion of Density chart of Sustainable and Traditional fund returns
Sustainable funds had positive
returns in the first half of Return 2025 (%)
2025, at 92% vs. 85% for
Traditional funds. Investors Median Median
were more likely to select a
better performing fund in the
9.2% 12.5%
Sustainable universe. Both
curves have long tails, with 0.035
the highest returning funds
+100% and the lowest nearly 0.030
-100%, resulting in a very wide
range of fund performance 0.025
outcomes. Using mean, or
simple average, returns would 0.020
Density

be disproportionately affected
by these long tails and not 0.015
represent the likelihood of
achieving that return across a 0.010
selection of funds.
0.005

0.000
-100 -75 -50 -25 0 25 50 75 100
The “Sustainable Reality” series uses median
fund returns as the primary metric without
any weighting to account for different fund
sizes. Median is the more appropriate return Return %
value given the non-normal distribution of
the entire universe of fund return. The median
value also better represents the likelihood of
an investor selecting a fund and achieving Sustainable Funds Traditional Funds
that specific return value.

Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of August 6, 2025.

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Equity and fixed income returns by style

Relative exposures to fund styles have influenced Sustainable fund returns in the past, but not materially in 1H 25

1H 25 median equity fund return by style 78% of Sustainable funds, Split of equity funds count by style
and 69% of Traditional
funds, focus on large cap
28% 29%
14.0% 13.1% 12.8% 11.4%
11.3% 11.9% 11.3% 11.2%
12.0%
10.1% 10.0% 10.8%
10.0% 8.5% 9.6%9.7%
8.5% 45%
8.0%
5.7%
61%
6.0%
5.7%
4.0% 2.3%
2.0% 26%
0.3% 11%
0%
Small Value Small Blend Small Growth Mid Value Mid Blend Mid Growth Large Value Large Blend Large Growth Sustainable Traditional

Sustainable Funds Traditional Funds Value Blend Growth

1H 25 Median Fixed Income Return by Style Fixed income fund count by

credit quality, 1H 25
18% of Sustainable funds 36% of Sustainable funds 23% of Sustainable funds
(22% of Traditional) (24% of Traditional) (18% of Traditional)

16% 14.2% 13.7%

10%
14% 21%
12% 11.4% 11.5%
10% 9.1%
8% 7.4% 6.9% 7.6%
5.4% 6.3% 5.5%6.0% 77%
6% 4.4% 4.8% 4.9% 4.9% 4.4%4.4% 64%
4%
2%
0%
High Yield BBB AAA/AA High Yield BBB AAA/AA High Yield BBB AAA/AA 16%
13%
SHORT DURATION MODERATE DURATION DATED LONG DURATION Sustainable Traditional
(<3.5 years) (>3.5 years to 6 years) (>6 years)

Sustainable Funds Traditional Funds High Yield BBB AAA/AA

Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of August 6, 2025. Morningstar classifies bond funds by the average credit rating of the portfolio.

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Regional focus: impact of new ESMA fund name guidelines

In May 2024, ESMA1 released guidelines on sustainability terms in fund Since April 2024, 764 funds have changed name. Over 90% removed a
names, requiring funds to exclude certain investments if using terms sustainability-related term altogether, with a few changing terms.
like “ESG” or “Sustainable” by May 2025.
Almost all of the funds changing name were Article 8 funds. Based on
• Today,
 more than 2,700 funds reporting under SFDR use current Morningstar classifications, 572 were Article 8/Sustainable
sustainability-related terms in their name, down from <3,500 in and 149 Article 8/Traditional, although based on December 2023
February 2025. More than half of Article 9 funds use these terms, classifications, this was 646 and 43 respectively. While there are other
at 56%; 43% of Article 8/ Sustainable2 funds, just 2% of Article 8/ variables, such as fund launches or closures, this suggests that around
Traditional funds; and 1% of Article 6 funds. 100 Article 8 funds may have changed investment strategy as well as
name, and therefore been reclassified by Morningstar.

Funds reporting under SFDR

0% 20% 40% 60% 80% 100%

1,226
Total funds (29k) 14,156 4,055 9,619

Using sustainability-related term today (2.7k) 136 1,732 148 690

Changed name, based on Dec 2023 tag (732) 19 646 43 24

Changed name (764) 19 572 149 24

Article 6 Article 8 + Morningstar Traditional Article 8 + Morningstar Sustainable Article 9

Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of August 6, 2025.

1

E uropean Securities and Markets Authority, see their final Guidelines. Funds had until May 2025 to comply.
2
S
 ustainable/Traditional classifications from Morningstar

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Restriction screening

Morningstar data on how funds are using restriction screening shows that the proportion of AUM subject to most exclusions continues to
move modestly higher. Controversial weapons, thermal coal and tobacco are the most common exclusions.

NORTH
% EUROPE- % AMERICA- % ASIA- %
RESTRICTION SCREENING GLOBAL Global DOMICILED Europe DOMICILED North America DOMICILED Asia
AT JUNE 2025 AUM, $bn AUM AUM, $bn AUM AUM, $bn AUM AUM, $bn AUM

Controversial Weapons 13,047 19.1% 12,368 68.2% 391 1.0% 288 3.4%

Thermal Coal 10,151 14.8% 9,854 54.4% 218 0.6% 79 0.9%

Tobacco 9,562 14.0% 8,864 48.9% 382 1.0% 316 3.7%

Other* 8,284 12.1% 7,815 43.1% 315 0.8% 150 1.8%

Fossil Fuel 7,858 11.5% 7,555 41.7% 234 0.6% 69 0.8%

Small Arms 6,532 9.5% 6,077 33.5% 307 0.8% 148 1.7%

Gambling 3,626 5.3% 3,302 18.2% 221 0.6% 99 1.2%

Adult Entertainment 3,501 5.1% 3,263 18.0% 144 0.4% 94 1.1%

Military Contracting 3,355 4.9% 3,147 17.4% 151 0.4% 58 0.7%

Alcohol 2,001 2.9% 1,706 9.4% 215 0.5% 77 0.9%

Nuclear Power 1,652 2.4% 1,518 8.4% 102 0.3% 32 0.4%

Palm Oil 1,380 2.0% 1,343 7.4% 24 0.1% 12 0.1%

Genetically Modified Organisms 690 1.0% 671 3.7% 16 0.0% 3 0.0%

Pesticides 570 0.8% 567 3.1% 4 0.0% 0 0.0%

Animal Testing 301 0.4% 244 1.3% 40 0.1% 17 0.2%

Fur and Specialty Leather 228 0.3% 224 1.2% 2 0.0% 1 0.0%

Abortion 155 0.2% 90 0.5% 64 0.2% 2 0.0%

Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of August 6, 2025.
Other* includes any factors not covered by the named exclusions, for example companies with operations in countries whose governments pose human rights concerns.

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Restriction screening over time

Europe-domiciled funds account for most of the AUM using restriction screening

Europe Restriction Screening, as % of Europe AUM Environmental Restriction Screening, as % of Global AUM
80% 16%
 ontroversial
C Thermal Coal
70% 68% 14% 14.0%
Weapons Fossil Fuel**
60% Thermal Coal 12% Nuclear Power
54% 11.5%
Tobacco Palm Oil
50% 49% Other 10% Pesticides
43%
40% 42% Fossil Fuel** 8%
34% Small Arms
30% Gambling 6%
18% Adult
20% 4%
17% Entertainment
9% Military 2.4%
10% 2% 2.0%
8% Contracting 0.8%
0% Alcohol 0%
Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Nuclear Power Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun
’19 ’19 ’20 ’20 ’21 ’21 ’22 ’22 ’23 ’23 ’24 ’24 ’25 ’19 ’19 ’20 ’20 ’21 ’21 ’22 ’22 ’23 ’23 ’24 ’24 ’25

Defense Restriction Screening, as % of Global AUM Values-Based Restriction Screening, as % of Global AUM
25% 15.0%
 ontroversial
C 14.0% Tobacco
Weapons Gambling
20%
19.1% Small Arms Adult
Military 10.0% Entertainment
15% Contracting Alcohol

10% 9.5% 5.3%

5.0% 5.1%
5% 4.9% 2.9%

0% 0%
Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun
’19 ’19 ’20 ’20 ’21 ’21 ’22 ’22 ’23 ’23 ’24 ’24 ’25 ’19 ’19 ’20 ’20 ’21 ’21 ’22 ’22 ’23 ’23 ’24 ’24 ’25

Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data as of August 6, 2025.
**Fossil fuel was introduced as a separate category starting in December 2022.

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Methodology
This report is part of the Morgan Stanley Institute for Sustainable Sustainable funds are those classified ‘Sustainable’ by Morningstar,
Investing’s ‘Sustainable Reality’ series, which assesses the historical which can differ from the newer, and still broad, European Sustainable
performance of Sustainable funds against Traditional funds over Finance Disclosure Regulation (SFDR) Article 8 and Article 9 definitions.
a specific timeframe using Morningstar data. This report analyzes Over 99% of Article 9 funds are also classified as Sustainable by
performance for January 1, 2025 – June 30, 2025. Morningstar, while this only applies for around 30% of Article 8
funds. Traditional funds are those classified as ‘Not Sustainable’ by
The fund universe for this analysis includes closed-end funds,
Morningstar.
exchange-traded funds and open-end funds, taking the oldest share
class, and excludes feeder funds, funds of funds and money market Morningstar’s calculation of total return is expressed in percentage
funds. In total, this analysis covered approximately 99,000 funds terms and is determined each month by taking the change in monthly
globally. This analysis takes each fund’s sustainability classification net asset value, reinvesting all income and capital-gains distributions
as of June 30 (for 1H editions) or December 31 (for full year editions). during that month and dividing by the starting net asset value (NAV). All
While the parameters for including a fund do not change, taking the returns figures refer to median returns, as in prior Sustainable Reality
fund’s classification at the most recent date means that universe of iterations.
funds can change for each edition. All historical datapoints are restated
There can be a time lag of weeks or months in funds reporting data
based on the current period classification.
to Morningstar, notably for Asia-domiciled funds. Some figures from
Morningstar classifies a fund as Sustainable if “...in the prospectus or prior periods are revised to reflect the latest disclosures. Where this is
other regulatory filings it is described as focusing on sustainability, material to prior analysis, the impact is noted in the text. Prior period
impact investing, or environmental, social or governance (ESG) factors. figures could also be subject to modest revisions in the future. Data
Funds must claim to have a sustainability objective, and/or use binding in this report were collected on August 6th, 2025. Older editions of
ESG criteria for their investment selection. Funds that employ only Sustainable Reality have looked at regional data based on the fund’s
limited exclusions or only consider ESG factors in a non-binding way domicile. As with the February 2024 edition, this report retains this
are not considered to be a Sustainable investment product.” breakdown and separately adds data based on a fund’s investment
area. For example, a fund could be domiciled in Europe but invest in
global assets.

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Disclosures
This material was published in September 2025 and has been prepared for a variety of factors. Any forward-looking statements made by or on behalf of
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This material was not prepared by the Morgan Stanley Research Department and circumstances or events that arise after the date the forward-looking statements
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not provide individually tailored investment advice. It has been prepared without volatile than investments that diversify across many sectors and companies.
regard to the individual financial circumstances and objectives of persons who
Certain portfolios may include investment holdings deemed Environmental,
receive it.
Social and Governance (“ESG”) investments. For reference, environmental (“E”)
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advisors, the economic risks and merits, as well as the legal, tax, regulatory and with individuals, such as its employees, shareholders, and customers as well
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Historical data shown represents past performance and does not guarantee and inclusion (“DEI”) investments. It is important to understand there are
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conditions may differ materially from those included in these statements due to

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Portfolios that include investment holdings deemed ESG investments or that This material may provide the addresses of, or contain hyperlinks to, websites.
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performance that is lower or higher than a portfolio not employing such Morgan Stanley Wealth Management, the firm has not reviewed the linked site.
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listed as “NR”. Credit ratings are subject to change.

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