High conviction bets are reshaping the climate funds market

The market for listed climate funds has grown in recent years. In 2019, these vehicles attracted some $60bn. By 2025, that cumulative number stood at $652bn. That is according to data from MSCI’s transition finance tracker.

Estimates of the listed climate funds market, now place the number at $709bn. In the first six months of 2026, that reflects a gain of $57.6bn.

NZI Transition and Climate Investment Conference | 22 October | London | Register here

Yet, the numbers tell only part of the story. MSCI Institute’s latest analysis, seen by Net Zero Investor, shows a push away from diversified exposure, skewed return distribution and a market converging on high conviction bets.

Structural trends

MSCI’s mapping of the universe reveals 1527 funds on offer. “Climate funds are growing, but the capital story is complicated”, says Rumi Mahmood, MSCI Institute’s research director.

So far this year, assets have risen sharply. Mahmood reckons this comes down to returns rather than capital inflows. “The gains are almost entirely return-driven rather than a sign of broad investor re-engagement. Net new flows are thin, and what inflows exist are narrowly concentrated in high-performing equity strategies.”, he explains.

Roughly 88% of the market’s growth came from price appreciation. New net inflows contributed just over $7bn – or 12% of the growth story.

In AUM terms, the market is dominated by equity plays. 70% of the fund universe is in equities, which is also the only asset class with relatively high net inflows at $7bn. In comparison fixed income net flows are at $1.3bn.

Thematic conviction

Mahmood’s reading of the numbers suggests thematic convictions are driving investor interest in climate funds.

“The market is bifurcating around thematic convictions like clean energy, emerging market climate equity, and nuclear are capturing both performance and flows”, he notes.

On the other hand, investor conviction around diversified climate solutions investing seems to be changing. “Multi-asset climate blends are in net outflow, suggesting investors are moving away from diversified climate solutions toward targeted, high-conviction bets”, Mahmood adds.

Climate performance

Performance is up, on average, but skews shape the data. 91% of the funds MSCI mapped were in positive return territory, year to date.

Median YTD returns for equity funds is estimated to be just over 11% while real returns for fixed income funds are essentially flat. Clean energy funds, MSCI’s analysis points out, have shown ‘the strongest combination of performance and flows’.

All in all, median fund return for listed climate funds is around 8.25% and the mean is closer to $12.7%. That difference, a telling sign of a skew, stands out. A small cluster of funds seems to be driving averages up.

Mahmood points to the source – Korea. “A small cluster of funds, heavily concentrated in Korean green economy themes, is pulling the averages up significantly”, he says.

59 funds in MSCI’s universe registered YTD returns north of 50%. These were almost entirely linked to Korean electric vehicles, hydrogen and the country’s green new deal policy stimulus.

To Mahmood, that raises questions over broad based capital allocation.

“The structural question the data raises is whether this is genuine momentum”, he asks, “or a narrow rally that has yet to translate into the kind of broad capital rotation that climate finance needs”.

Longview Networks: Institutional Investment Conferences and Summits