SECP Proposes ESG Mutual Funds to promote sustainable investing

ISLAMABAD, Apr 6 (APP): The Securities and Exchange Commission of Pakistan (SECP) has proposed the launch of Environmental, Social and Governance (ESG) Mutual Funds to promote sustainable investment and offer new opportunities to investors.

The proposed ESG funds will allow investors to earn returns while supporting businesses and projects that meet environmental, social, and governance standards, said a press release issued by the SECP here on Monday.

The initiative is expected to channel savings into responsible investments, promote sustainable development, and strengthen Pakistan’s capital markets in line with global trends.

The proposal is part of SECP’s broader ESG Regulatory Roadmap, which focuses on improving transparency, encouraging responsible business practices, and aligning Pakistan’s financial sector with international standards.

In recent years, SECP has taken several steps to build an ESG ecosystem. These include issuing ESG Disclosure Guidelines, adopting international sustainability reporting standards such as IFRS S1 and S2, strengthening corporate governance frameworks, and developing ESG data platforms like ESG Sustain.

To address the lack of structured sustainable investment products, SECP has proposed a clear and regulated framework for ESG mutual funds. The framework is principle-based and flexible. It requires at least 70 percent of investments to be made in ESG-aligned assets, while allowing asset managers to adopt different investment strategies.

The framework also introduces strong disclosure requirements, governance standards, and assurance mechanisms to ensure transparency and prevent greenwashing. These measures aim to build investor confidence and ensure the credibility of ESG products.

For equity-based ESG funds, investments will be aligned with the Pakistan Stock Exchange’s upcoming Sustainability Index. Until its launch, asset management companies will rely on internal ESG assessment methods. Debt-based funds will invest in green, social, and sustainability-linked instruments under Pakistan’s Green Taxonomy and SECP guidelines.