Could tensions over trade and changes in U.S. policy shift the eye of climate finance away from the world’s largest economy?
That’s one possibility suggested by recent flows within climate-themed funds. While U.S.-based companies have historically attracted the lion’s share of investment in these strategies, funds have begun to flow toward opportunities elsewhere in recent months.
Since 2018, U.S.-listed companies have made up a larger share of climate funds than they do of the overall market, averaging 67% in climate funds, compared with 58% in global markets generally (as represented by the MSCI ACWI Index), based on publicly listed funds in our coverage.
Since the start of the year, however, we estimate that the share of U.S. equities in climate funds declined by by about 10 percentage points. That compares with a 3.1 percentage point drop in the weight of U.S. stocks within the MSCI ACWI Index over the same period.
While part of the rotation away from U.S. equities in climate funds mirrors broader allocation trends, we estimate that about half — roughly 6 percentage points — reflects active reallocation by climate funds toward companies in Europe and the Asia-Pacific region, with the rest driven by market movements.[1] This marks the first such shift in at least seven years.
Investments of climate-themed funds by region (%)
Source: MSCI ESG Research, data based on asset-weighted exposures of 1,528 climate funds as of May 31, 2025.
To be sure, one reason that climate funds have tilted toward the U.S. in recent years is that it’s the place to be for returns. U.S. equities have enjoyed average annualized net returns of just over 12% in the 10 years ended May 31, 2025, twice that of their global counterparts.[2] Still, it’s not as if climate fund managers don’t have a global perspective. The overwhelming majority of them are based in Europe and Asia.
Destination and source of climate-themed funds by region (%)
Source: MSCI ESG Research, data based on asset-weighted exposures of 1,528 climate funds as of May 31, 2025.
Europe in the running?
Europe’s attractiveness to investors could benefit from several tailwinds. Borrowing costs may stay lower for longer than in the U.S., where capital deployment into clean-energy projects have been challenged by a higher interest rate environment. Even with strong appreciation in the year to date, European companies continue to trade at significantly lower multiples than U.S. companies. Finally, policy support remains more stable across many markets in Europe and the U.K., with the EU’s Green Deal, binding national emissions roadmaps, and an enhanced Emissions Trading System signaling a more predictable regulatory environment.
Asia: Riding the innovation wave
Investors are also eyeing transition leaders across the Asia-Pacific region. India, Taiwan, and South Korea host fast-growing clean-tech champions, while China continues to dominate innovation in renewables. Between 2019 and 2024, Asian companies in energy storage, green mobility and low-carbon power expanded revenues at compound annual growth rates of 66%, 74% and 26%, respectively, outpacing peers in the U.S. and Europe.
Pure-play providers, year-over-year revenue growth (2019-2024, revenue-weighted)
Source: MSCI ESG Research, FactSet. Pure-play solutions providers are defined as those that earn more than 50% of their revenues from the identified low-carbon business lines based on the MSCI Sustainable Impact Metrics methodology, as of the latest assessed financial report. Low-carbon solutions providers (excluding pure players) are identified using a low threshold of 5% to include companies that are potentially transitioning and positioning for growth from the identified low-carbon business lines. Energy storage includes fuel cells and other energy storage solutions, such as battery energy storage. Green mobility includes zero emissions and hybrid vehicles and clean transport infrastructure (e.g., railway infrastructure). Low-carbon power includes renewable energy (solar, wind, wave tidal, small hydropower, geothermal, waste-to-energy and biomass) and nuclear power. Revenue growth is calculated in USD. Weights are derived using the average revenue of companies between 2019 and 2024. Winsorization of the average year-over-year growth rates was done at the 5th and 95th percentile to reduce the influence of extreme values.
Despite this growth, global demand for APAC equities have remained muted as a whole in the face of U.S. equity dominance, driven by the tech sector. Whether the comparatively stable national climate commitments across many markets in the region will alter this dynamic remains an open question.
Testing U.S. resilience
The depth, liquidity and institutional underpinning of the U.S. market continue to confer clear advantages. Investors express stronger confidence in future earnings growth for U.S.-listed companies compared with their counterparts elsewhere.
Still, climate-focused investors increasingly could be drawn to opportunities beyond U.S. borders, whether by valuations, stability of policy, an expanding clean-tech pipeline or simply the potential for greater diversification. The energy transition opportunity may, after all, open a new chapter for the global economy.
The authors thank Kenji Watanabe and Anthony Chan for their contributions to this post.
