ISLAMABAD: Pakistan has taken a significant step toward sustainable finance as the Securities and Exchange Commission of Pakistan (SECP) launches the nation’s first Environmental, Social, and Governance (ESG) Mutual Funds Framework. This new framework allows Asset Management Companies (AMCs) to develop ESG-focused mutual funds, aligning Pakistan’s capital market with global sustainable investment trends.

According to Securities and Exchange Commission of Pakistan, sustainable investing globally has seen rapid growth, with over USD 16 trillion managed under sustainable strategies. As demand increases for investments that combine financial returns with responsible business practices, regulatory bodies worldwide are implementing frameworks to foster ESG investing.

For Pakistan, this initiative is crucial as the nation is among those most vulnerable to climate change. The framework provides a clear regulatory structure for ESG-focused collective investment schemes and integrates Pakistan’s financial market with the expanding global sustainable investment community.

The framework outlines that equity-based ESG mutual funds will invest primarily in companies listed on the Pakistan Stock Exchange’s Sustainability Index and those that comply with SECP’s ESG Disclosure Guidelines. Debt-based ESG mutual funds will focus on investing in green, social, and sustainability-linked debt instruments, guided by Pakistan’s Green Taxonomy and Sustainable Finance Framework.

This initiative aims to motivate Pakistani companies to enhance their ESG practices, thereby increasing their access to sustainable investment capital and encouraging responsible corporate behavior.

To ensure investor protection and market integrity, the framework mandates that ESG mutual funds allocate at least 50 percent of their net assets to ESG-aligned investments. It also sets governance, disclosure, and independent assurance requirements to prevent greenwashing and improve transparency and accountability.

The ESG Mutual Funds Framework is a component of SECP’s comprehensive sustainability reform agenda. The Commission has previously introduced ESG Disclosure Guidelines for listed companies, adopted IFRS Sustainability Disclosure Standards (IFRS S1 and S2), launched the ESG Sustain Platform, and developed Pakistan’s Green Taxonomy.

These initiatives are bolstering Pakistan’s sustainable finance ecosystem and positioning the country’s capital market to attract responsible and long-term investments.