The Securities and Exchange Commission of Pakistan (SECP) has proposed the launch of Environmental, Social, and Governance (ESG) mutual funds, aiming to open new avenues for investors to earn returns while supporting sustainable and responsible businesses.
According to the regulator, the proposed ESG funds will allow investors to channel their savings into companies and projects that meet defined environmental, social, and governance standards. The initiative is part of SECP’s broader effort to promote sustainable development and align Pakistan’s financial system with global investment trends.
The move falls under SECP’s ESG Regulatory Roadmap, which focuses on improving transparency, strengthening corporate governance, and encouraging responsible business practices across the country’s financial ecosystem.
In recent years, SECP has taken several steps to establish a robust ESG framework. These include issuing ESG disclosure guidelines, adopting international sustainability reporting standards such as IFRS S1 and S2, and enhancing governance frameworks for listed companies. The regulator has also introduced ESG-focused platforms like ESG Sustain to improve data availability and transparency.
Key Features of the Proposed ESG Funds
To address the lack of structured sustainable investment options in Pakistan, SECP has outlined a flexible, principle-based framework for ESG mutual funds. Under the proposal:
- At least 70% of fund investments must be allocated to ESG-aligned assets
- Asset managers will have flexibility in designing investment strategies
- Strong disclosure and governance requirements will be mandatory
- Assurance mechanisms will be introduced to prevent greenwashing and ensure credibility
These measures are intended to build investor trust and ensure that ESG-labelled investments genuinely meet sustainability criteria.
Link with Pakistan Stock Exchange
For equity-based ESG funds, investments will be aligned with the upcoming Sustainability Index of the Pakistan Stock Exchange (PSX). Until the index is formally launched, asset management companies will rely on their own ESG assessment methodologies.
Meanwhile, debt-based ESG funds will invest in green, social, and sustainability-linked instruments in accordance with Pakistan’s Green Taxonomy and SECP guidelines.
SECP has published the consultation paper on its official website and invited feedback from stakeholders. The deadline for submissions is April 21, 2026.
The proposed ESG mutual funds are expected to not only diversify investment opportunities but also play a key role in driving environmentally and socially responsible economic growth in Pakistan.
