SECP proposes ESG mutual funds to boost sustainable investment

Pakistan’s Securities and Exchange Commission (SECP) has proposed the introduction of Environmental, Social and Governance (ESG) mutual funds, aiming to expand sustainable investment options and align the country’s financial markets with global practices.

The proposed funds would enable investors to generate returns while supporting businesses and projects that meet ESG standards, channeling capital toward responsible investments and sustainable development.

The initiative forms part of SECP’s broader ESG regulatory roadmap, which seeks to enhance transparency, strengthen corporate governance and encourage responsible business conduct across the financial sector.

In recent years, the regulator has taken steps to build an ESG ecosystem, including issuing disclosure guidelines, adopting international sustainability reporting standards such as IFRS S1 and S2, and developing ESG data platforms.

To address the limited availability of structured sustainable investment products, SECP has outlined a principle-based framework for ESG mutual funds. Under the proposal, at least 70% of investments must be allocated to ESG-compliant assets, while allowing flexibility in investment strategies.

The framework also introduces disclosure, governance and assurance requirements aimed at ensuring transparency and preventing greenwashing, in a bid to strengthen investor confidence.

Equity-based ESG funds would align with the Pakistan Stock Exchange’s planned Sustainability Index, while debt-based funds would invest in green and sustainability-linked instruments under national guidelines.

SECP has published the consultation paper on its website and invited stakeholder feedback by April 21, 2026.