The Securities and Exchange Commission of Pakistan (SECP) has introduced the country’s first Environmental, Social, and Governance (ESG) Mutual Funds Framework, paving the way for asset management companies to launch ESG-focused mutual funds for local investors.

The new regulatory framework is designed to promote sustainable investing by directing capital toward companies that meet stronger environmental, social, and corporate governance standards while expanding Pakistan’s sustainable finance ecosystem.

Under the framework, equity-based ESG mutual funds will primarily invest in companies listed on the Pakistan Stock Exchange’s Sustainability Index. Debt-based ESG funds, meanwhile, will focus on green, social, sustainability, and sustainability-linked debt instruments.

To preserve the credibility of these funds, the SECP has made it mandatory for ESG mutual funds to allocate at least 50 percent of their assets to ESG-compliant investments. The regulator said this requirement will help curb greenwashing while strengthening investor confidence in sustainable investment products.

The launch marks another milestone in the regulator’s broader sustainable finance agenda. It follows several recent initiatives, including the introduction of ESG Disclosure Guidelines, adoption of IFRS Sustainability Standards, the ESG Sustain Platform, and the Pakistan Green Taxonomy, all aimed at developing a more sustainable and transparent financial market.

The SECP believes the framework will encourage listed companies to improve their ESG performance and make Pakistan’s capital markets more attractive to both domestic and international investors seeking sustainable investment opportunities.