Pakistan's ESG Mutual Funds Framework: SECP's 50% Rule
Pakistan's First ESG Mutual Funds Framework: What the SECP 50% Rule Means
On 1 July 2026 the Securities and Exchange Commission of Pakistan (SECP) issued the country's first ESG Mutual Funds Framework, and it changed what an asset management company (AMC) is allowed to call an ESG fund. Until now, a fund in Pakistan could carry a green or sustainable label with no rulebook behind it. The Pakistan ESG Mutual Funds Framework closes that gap.
It sets a hard floor. At least 50 percent of a fund's net assets must sit in ESG-aligned investments, backed by governance, disclosure and independent assurance rules built to catch greenwashing before it reaches an investor. ESG stands for environmental, social and governance: the non-financial factors used to judge how a company handles climate risk, its people and communities, and its own oversight.
Sources: Business Recorder | Express Tribune
For AMCs this is a product-design decision with a compliance obligation attached. For institutional allocators and development finance investors watching Pakistan, it is the first SECP-regulated route into local sustainable investing that carries a real definition of green.
In this article
- What Pakistan's ESG Mutual Funds Framework is
- Inside the 50% rule
- The anti-greenwashing guardrail
- The missing piece: the index isn't live yet
- How Pakistan compares globally and across the GCC
- What AMCs should do before launching
- FAQ
What Is Pakistan's ESG Mutual Funds Framework?
Pakistan's ESG Mutual Funds Framework is an SECP regulation, effective 1 July 2026, that lets AMCs launch environmental, social and governance funds. It requires at least 50 percent of net assets in ESG-aligned investments and adds governance, disclosure and independent assurance rules to prevent greenwashing.
The framework sits inside the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003, the regime SECP already uses to govern the mutual fund industry. Pakistan's mutual fund assets exceed Rs 2 trillion, so the rule attaches a sustainable-investment standard to a market that already has real scale.
Sources: ProPakistani | TaxToday
Inside the 50% Rule: What Actually Counts as ESG
The 50 percent floor is the spine of the framework. What qualifies depends on whether the fund is equity or debt, and the two routes point at different parts of Pakistan's sustainable finance stack.
Equity ESG funds
Equity funds will invest primarily in companies included in the Pakistan Stock Exchange's Sustainability Index and firms that comply with SECP's ESG Disclosure Guidelines. In practice, the eligible universe is meant to be the listed companies that manage material ESG risk credibly, not simply the ones that say they do.
Source: Business Recorder
Debt ESG funds
Debt funds will channel money into green, social and sustainability-linked instruments issued under Pakistan's Green Taxonomy and the country's Sustainable Finance Framework. Green bonds fund environmental projects. Social bonds fund social outcomes. Sustainability-linked instruments adjust their terms based on whether the issuer meets agreed sustainability targets.
Source: Profit by Pakistan Today
The number that changed: 70 to 50
This detail matters. SECP's April 2026 concept paper proposed a 70 percent minimum. The final framework landed at 50 percent. That 20-point cut is the regulator reading its own market: set the bar where Pakistani AMCs can clear it on day one, then tighten later. A threshold nobody can meet mobilises no capital, and an empty fund category proves nothing.
Sources: TaxToday (concept paper, 70%) | Business Recorder (final, 50%)
The Anti-Greenwashing Guardrail
The 50 percent floor alone does not stop greenwashing. Greenwashing is the practice of overstating a product's environmental or sustainability credentials to attract investors. The framework's real teeth sit in three requirements that run alongside the threshold.
- Governance: named, documented oversight of the fund's ESG mandate, so the label is somebody's responsibility rather than a marketing choice.
- Disclosure: enhanced, ongoing reporting on how the fund actually meets its ESG criteria.
- Independent assurance: third-party verification, so the green claim is checked by someone other than the firm selling the fund.
Source: Express Tribune
Spectreco, a sustainability technology and advisory firm working across North America, Europe, the Middle East and South Asia, has written on how AI-validated ESG data closes the gap between what a fund claims and what its holdings actually do. That gap is exactly what independent assurance is designed to expose.
The Missing Piece Nobody Is Talking About
Here is the structural problem sitting under the launch. Equity ESG funds are told to track the Pakistan Stock Exchange Sustainability Index. That index does not formally exist yet.
The Pakistan Stock Exchange (PSX) opened public consultation on its Sustainability Index (PSI) concept paper on 6 July 2026, five days after the fund framework went live, with stakeholder feedback due by 17 July 2026. PSX chief executive Farrukh Sabzwari described it as a total-return, materiality-adjusted benchmark with sector-specific weights rather than a uniform checklist. It is a credible design. It is also still a draft.
Sources: APP | ProPakistani
The debt side, by contrast, has its rulebook. The State Bank of Pakistan (SBP) adopted the Pakistan Green Taxonomy through SH&SFD Circular No. 06 of 2025 in December 2025, giving debt funds a live, science-based definition of green to point at. The taxonomy is a classification system that sets a single definition of what counts as a green economic activity.
Sources: SBP Circular 06 of 2025 | Profit by Pakistan Today
So the asymmetry is real. Until the PSI publishes its final constituents, equity AMCs will lean on their own ESG assessment methodologies, which is precisely the discretion the framework is trying to constrain. The rule is in force. Half of its reference architecture is still in consultation. That gap is the story for the next two quarters, and the disclosure backbone it all rests on is the SECP's IFRS sustainability mandate, covered in Spectreco's guide to SECP Phase 2 and IFRS S2 readiness.
How Pakistan's Rule Compares Globally and Across the GCC
Pakistan is not inventing this. It is importing a playbook that regulators in the UK, EU and Gulf have already run.
The UK and EU template
The UK Financial Conduct Authority (FCA) built its Sustainability Disclosure Requirements (SDR) around four investment labels and a general anti-greenwashing rule that took effect on 31 May 2024, with naming and marketing rules following on 2 December 2024. The EU's Sustainable Finance Disclosure Regulation (SFDR) sorts funds into its Article 8 and Article 9 categories. Both do what Pakistan's framework does: force the label to match the holdings.
Source: FCA
The GCC parallel through green debt
The Gulf is on the same track, led by debt. Saudi Arabia's Capital Market Authority now requires ESG disclosure from issuers of green, social and sustainability-linked bonds under its GSS/SLB framework, and the GCC is on course for USD 20 to 25 billion of sustainable bond issuance in 2026, according to S&P Global. Pakistan's debt-fund route plugs directly into this same green-sukuk and green-bond supply. For a Gulf view of that issuer market, Spectreco has mapped the Saudi CMA green and sustainability debt disclosure rules in detail.
Sources: S&P Global Ratings (GCC sustainable bond issuance forecast) | Spectreco: Saudi CMA GSS/SLB debt disclosure
The pattern across every one of these markets is the same. The anti-greenwashing rule arrives with the money, or just ahead of it. Pakistan has done exactly that.
What Pakistani AMCs Should Do Before Launching an ESG Fund
An ESG label is now a regulated claim in Pakistan, not a marketing decision. Before an AMC files for one, five things need to be in place.
- Define the eligible universe. Decide in writing what counts as ESG-aligned for your fund, mapped to the PSX Sustainability Index criteria once final for equity, or the Pakistan Green Taxonomy for debt.
- Build the data pipeline. You cannot assure what you cannot measure. Stand up ESG data collection and validation before launch, not after the first assurance review.
- Assign governance. Name the committee or officer accountable for the ESG mandate, and document how a breach of the 50 percent floor is caught and corrected.
- Design disclosure now. Draft the ongoing ESG disclosures the framework requires as part of fund documentation, so audit-ready reporting is built in rather than retrofitted under deadline.
- Line up independent assurance. Engage a third-party assurance provider early and structure the data so it is auditable from day one.
Getting this stack right is the hard part, and it is where technology and a managed sustainability function earn their keep. Spectreco's cloud-native ESG platform centralises and validates the fund-level data assurance depends on, its Virtual Sustainability Office runs the reporting cycle so nothing slips, and its Climate and Green Finance advisory team helps structure funds against the taxonomy and index criteria.
Frequently Asked Questions (FAQs)
The Bottom Line
Pakistan's ESG fund market finally has a rulebook, and a credible one. The AMCs that move first, with data pipelines and assurance already in place, will set the standard for what a genuine ESG fund looks like here. The ones that wait for the index to settle before touching their data will be launching into a market that has already priced them.
Spectreco helps AMCs structure ESG funds that clear the 50 percent floor and survive assurance. Talk to our Climate and Green Finance team to map your fund against the taxonomy and index criteria before you file.
.jpg)
More From Our Blog
Your ESG Journey?