ISLAMABAD: Pakistan has taken a major step toward sustainable finance as the Securities and Exchange Commission of Pakistan (SECP) has issued the country’s first Environmental, Social and Governance (ESG) Mutual Funds Framework, aimed at promoting responsible investment practices and aligning the local financial sector with global sustainability standards.

Under the new framework, asset management companies will now be able to launch ESG mutual funds in Pakistan. According to SECP, the initiative is designed to encourage companies to adopt stronger ESG practices related to environmental protection, social responsibility, and corporate governance.

The ESG mutual funds will invest in companies that meet defined sustainability criteria. Equity ESG funds will focus on firms included in the Pakistan Stock Exchange (PSX) Sustainability Index, while debt ESG funds will allocate capital to green, social, and sustainability-linked financial instruments.

The regulator said at least 50% of assets in ESG funds must be invested in ESG-compliant instruments, ensuring greater accountability and credibility in sustainable investment products.

SECP officials said the framework will also help prevent greenwashing and improve investor confidence in sustainable financial products. It is part of a broader reform agenda to strengthen Pakistan’s sustainable finance ecosystem.

Pakistan has already introduced several related initiatives, including ESG disclosure guidelines, IFRS sustainability standards, an ESG platform, and a national green taxonomy.

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