Pakistan enters sustainable investment market with SECP's ESG Mutual Funds Framework

Pakistan has taken a major step toward sustainable finance, with the Securities and Exchange Commission of Pakistan (SECP) introducing the country's first ESG Mutual Funds Framework.

The framework allows Asset Management Companies (AMCs) to launch Environmental, Social and Governance (ESG)-focused mutual funds, bringing Pakistan's capital market closer to global sustainable investment standards.

Globally, sustainable investing has grown rapidly, with more than USD 16 trillion in assets managed under sustainable investment strategies. As investors increasingly seek opportunities that combine financial returns with responsible business practices, regulators worldwide are introducing frameworks to support ESG investing.

For Pakistan, the initiative is particularly significant, as the country remains among the world's most climate-vulnerable nations. The framework establishes a transparent regulatory regime for ESG-aligned collective investment schemes and opens Pakistan's financial market to the expanding global sustainable investment ecosystem.

Under the framework, equity-based ESG mutual funds will primarily invest in companies included in the Pakistan Stock Exchange's Sustainability Index and those aligned with the SECP's ESG Disclosure Guidelines. Debt-based ESG mutual funds will invest in green, social and sustainability-linked debt instruments in line with Pakistan's Green Taxonomy and Sustainable Finance Framework.

The framework is expected to encourage Pakistani companies to strengthen their environmental, social and governance practices, improving access to sustainable investment capital while promoting responsible corporate behavior.

To protect investors and maintain market integrity, the framework requires ESG mutual funds to invest at least 50% of their net assets in ESG-aligned investments. It also introduces governance, disclosure and independent assurance requirements to help prevent greenwashing and improve transparency and accountability.

The ESG Mutual Funds Framework is part of the SECP's broader sustainability reform agenda. In recent years, the commission has introduced ESG Disclosure Guidelines for listed companies, adopted the IFRS Sustainability Disclosure Standards (IFRS S1 and IFRS S2), launched the ESG Sustain platform, and developed Pakistan's Green Taxonomy.

Together, these reforms are strengthening Pakistan's sustainable finance ecosystem and positioning the country's capital market to attract responsible, long-term investment.