After more than three years of relentless investor withdrawals, U.S. finally staged a comeback in the second quarter of 2026.

But the recovery has less to do with a renewed passion for environmental, social and governance (ESG) investing than with one of Wall Street’s hottest themes: artificial intelligence.

According to Morningstar, U.S. sustainable funds attracted nearly $3 billion in net inflows during the second quarter, ending a streak of 14 consecutive quarters of outflows dating back to early 2022. The inflows, coupled with rising markets, pushed total sustainable fund assets to a record $398 billion.

• First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund stock is holding steady today.

However, the rebound was highly concentrated rather than broad-based.

The biggest beneficiary was the First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index ETF ), which alone pulled in $3.1 billion during the quarter — more than the category’s overall net inflows. The ETF has now attracted over $7.5 billion in the past year, making it one of the standout winners in the sustainable investing space.

AI Is Creating New ESG Winners

GRID’s recent success illustrates how the investment case for sustainable ETFs is evolving.

Rather than relying on traditional clean-energy themes, the ETF focuses on companies helping modernize the electric grid — an increasingly critical investment as electricity demand surges from AI data centers.

Its largest holdings include Eaton Corporation ETN) and Schneider Electric ADR (OTC:SBGSY), companies that manufacture electrical equipment, power distribution systems and automation technologies used by utilities and hyperscale data centers. Eaton has climbed nearly 35% this year, while Schneider Electric has gained around 20%, helping GRID return roughly 25% in 2026 through the second quarter, comfortably outperforming the 10.7% gain in the Morningstar U.S. Market Index.

The trend reflects what many market strategists have described as the “second wave” of AI investing, in which capital is flowing beyond chipmakers such as Nvidia into companies supplying the infrastructure needed to power the AI boom.

Other Tailwinds

Apart from AI, there are other forces that are supporting sustainable ETFs.

Morningstar noted that geopolitical tensions in the Persian Gulf pushed oil prices above $100 per barrel, prompting governments and businesses to accelerate investments in alternative energy sources and grid resilience.

Renewable energy companies also benefited from this shift.

For example, Enlight Renewable Energy Ltd (NASDAQ:ENLT), a top holding in the First Trust Global Wind Energy ETF (NYSE:FAN), nearly doubled in value through late July. FAN gained about 16% over the same period and attracted more than $60 million in net inflows through the end of June.

The rebound was driven almost entirely by passive ETFs, which attracted $6.5 billion during the quarter, more than offsetting the $3.6 billion redeemed from active sustainable funds. Active funds have now recorded 13 straight quarters of outflows, while passive assets jumped from $167 billion to nearly $199 billion, accounting for almost half of total sustainable fund assets. The trend reflects investors’ growing preference for lower-cost index ETFs.

Is ESG Really Back?

Despite the encouraging headline numbers, Morningstar’s data suggests investors are being selective rather than embracing the entire sustainable investing universe.

The return to positive flows was concentrated in a small group of passive ETFs tied to electrification, grid infrastructure and renewable energy, areas directly benefiting from AI-driven power demand and growing energy security concerns.

Rather than signaling a full-fledged ESG revival, the inflows point to a more targeted trend. Investors appear to be favoring sustainable ETFs positioned to benefit from AI’s soaring electricity demand and the buildout of power infrastructure.

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