The Securities and Exchange Commission of Pakistan (SECP) released a concept paper on 6 April 2026 proposing a formal regulatory framework for Environmental, Social, and Governance (ESG) mutual funds — requiring at least 70% of all fund investments to flow into ESG-aligned assets — and opened the proposal for public consultation with a submission deadline of 21 April 2026. The move marks the first structured product-level regulatory framework for sustainable investment in Pakistan’s mutual fund industry, which the SECP governs under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003.
The framework is principle-based and flexible. It requires at least 70% 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.
For equity-based ESG funds, investments will be aligned with the upcoming Sustainability Index of the Pakistan Stock Exchange (PSX). Until the index is formally launched, asset management companies will rely on their own ESG assessment methodologies. Meanwhile, debt-based ESG funds will invest in green, social, and sustainability-linked instruments in accordance with Pakistan’s Green Taxonomy and SECP guidelines.
The PSX Sustainability Index — to which equity ESG funds will eventually be benchmarked — does not yet have a launch date. This means the period between fund launch and index readiness will rely entirely on each AMC’s internal ESG scoring, creating a transitional gap that the SECP’s greenwashing safeguards are designed to address.
| Fund Type | Investment Universe | Benchmark / Standard |
|---|---|---|
| Equity-based ESG Fund | PSX-listed ESG-compliant companies | PSX Sustainability Index (pending launch) |
| Debt-based ESG Fund | Green bonds, social bonds, sustainability-linked instruments | Pakistan Green Taxonomy, SECP guidelines |
Both fund types will carry mandatory disclosure requirements, governance standards, and third-party assurance mechanisms to verify ESG claims and prevent greenwashing.
The framework introduces strong disclosure requirements, governance standards, and assurance mechanisms to ensure transparency and prevent greenwashing. These measures aim to build investor confidence and maintain the credibility of ESG products.
To prevent misleading claims about environmental compliance, SECP has provided clear guidelines for fund managers. ESG mutual funds will be aligned with the Pakistan Stock Exchange’s proposed Sustainability Index, ensuring consistency with broader market standards for sustainable and responsible investment.
SECP’s ESG mutual fund proposal does not arrive in isolation. The regulator has built a layered policy architecture over several years:
The SECP has issued revised ESG Disclosure Guidelines for Listed Companies aligned with the Pakistan Green Taxonomy, providing a standardised reporting framework that enables listed companies to disclose climate-related risks, opportunities, and activity-level data. The guidelines aim to move Pakistan’s capital market toward more credible, comparable, and decision-useful climate disclosures.
On 31 December 2024, the SECP formally mandated the phased implementation of IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) for all listed companies and SECP-licensed non-listed Public Interest Companies.
SECP also runs the ESG Sustain platform — a dedicated portal centralising ESG resources, corporate disclosures, and regulatory guidance for Pakistan’s capital market participants.
Pakistan requires an estimated $565.7 billion in investment by 2035 to meet its updated climate commitments under Nationally Determined Contributions (NDC) 3.0 — covering greenhouse gas emission cuts, renewable energy expansion, and climate resilience. Pakistan’s Green Taxonomy is intended to guide banks, investors, and corporates in aligning financing decisions with climate goals.
Domestic mutual fund industry assets in Pakistan currently exceed Rs 2 trillion. A mandated 70% ESG-aligned allocation in dedicated ESG funds would, if the product category grows, direct significant institutional and retail capital toward listed companies meeting environmental and governance thresholds — raising the bar for publicly disclosed standards in Pakistan’s corporate sector.
For Pakistan’s asset management companies (AMCs) — currently regulated under the NBFC Rules by SECP — the proposal signals a new product category that will require investment in internal ESG research capabilities, sustainability data sourcing, and disclosure infrastructure before any ESG-labelled fund can be legally marketed to investors. For retail investors seeking both returns and responsible deployment of savings, the framework — once finalised — will offer the first SECP-regulated route to sustainable investing through the mutual fund channel, with regulatory protection against misleading green labels.
The SBP policy rate currently stands at 10.5%, making fixed-income ESG alternatives in the debt fund category potentially competitive with conventional income funds depending on green bond yields.