SECP allows asset managers to launch ESG-focused mutual funds

The Securities and Exchange Commission of Pakistan (SECP) allowed Asset Management Companies (AMCs) to launch Environmental, Social and Governance (ESG)-focused mutual funds, as the commission issued the country’s first ESG Mutual Funds Framework.

The SECP announced the development in a statement on Wednesday, terming it a major step towards sustainable finance.

“Globally, sustainable investing has grown rapidly, with more than $16 trillion in assets managed under sustainable investment strategies. As investors increasingly seek investments that combine financial returns with responsible business practices, regulators around the world are introducing frameworks to support ESG investing.

“For Pakistan, the initiative is particularly important as the country remains among the world’s most climate-vulnerable nations. The new framework establishes a transparent regulatory regime for ESG-aligned collective investment schemes and opens Pakistan’s financial market to the growing global sustainable investment ecosystem.”

Under the framework, equity-based ESG mutual funds will primarily invest in companies included in the Pakistan Stock Exchange’s Sustainability Index and those aligned with SECP’s ESG Disclosure Guidelines. Debt-based ESG mutual funds will invest in green, social and sustainability-linked debt instruments in line with Pakistan’s Green Taxonomy and Sustainable Finance Framework.

“The framework is expected to encourage Pakistani companies to improve their environmental, social and governance practices, enhancing their access to sustainable investment capital while promoting responsible corporate behaviour.

“To protect investors and maintain market integrity, the framework requires ESG mutual funds to invest at least 50% of their net assets in ESG-aligned investments. It also introduces governance, disclosure and independent assurance requirements to prevent greenwashing and enhance transparency and accountability,” the SECP said.

The ESG Mutual Funds Framework is part of SECP’s broader sustainability reform agenda. In recent years, the commission has 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 reforms are strengthening Pakistan’s sustainable finance ecosystem and positioning the country’s capital market to attract responsible and long-term investment,” the SECP said.