The Securities and Exchange Commission of Pakistan (SECP) has proposed the introduction of Environmental, Social, and Governance (ESG) Mutual Funds to promote sustainable investment and create new opportunities for investors.
The proposed ESG funds aim to enable investors to earn returns while supporting businesses and projects that meet environmental, social, and governance standards. The initiative is expected to channel savings into responsible investments, foster sustainable development, and strengthen Pakistan’s capital markets in line with global trends.
This move is part of SECP’s broader ESG Regulatory Roadmap, which focuses on improving transparency, encouraging responsible business practices, and aligning Pakistan’s financial sector with international standards.
In recent years, SECP has taken multiple steps to build an ESG ecosystem. These include issuing ESG Disclosure Guidelines, adopting international sustainability reporting standards such as IFRS S1 and S2, enhancing corporate governance frameworks, and developing ESG data platforms like ESG Sustain.
To address the current lack of structured, sustainable investment products, SECP has proposed a clear and regulated framework for ESG mutual funds. The framework is principle-based and flexible, requiring at least 70 percent of investments to be in ESG-aligned assets while allowing asset managers to adopt varied investment strategies.
The framework also introduces strong disclosure requirements, governance standards, and assurance mechanisms to ensure transparency and prevent greenwashing. These measures aim to build investor confidence and maintain the credibility of ESG products.
For equity-based ESG funds, investments will align with the Pakistan Stock Exchange’s upcoming Sustainability Index. Until its launch, asset management companies will rely on internal ESG assessment methods. Debt-based funds will invest in green, social, and sustainability-linked instruments under Pakistan’s Green Taxonomy and SECP guidelines.
The consultation paper is available on SECP’s website, and stakeholders have been invited to submit feedback by April 21, 2026.