KARACHI: Pakistan Stock Exchange (PSX) has released a Concept Paper for its proposed Sustainability Index (PSI), establishing a benchmark that could fundamentally reshape how Pakistani companies are valued by investors aligned with environmental, social, and governance principles.
The PSI is designed as a total-return performance benchmark that identifies and measures the performance of listed companies embedding financially relevant and material ESG risks and opportunities into their business models. The index represents a significant step in Pakistan’s sustainable finance ecosystem, providing investors and asset managers with a credible tool to build ESG-aligned products.
A Credible, Transparent Benchmark
Speaking on the development, PSX Chief Executive Officer Farrukh Sabzwari emphasized the growing centrality of ESG considerations in capital markets.
“ESG is no longer a conversation held at the margins of capital markets; it is increasingly central to how companies are valued, how capital is allocated, and how long-term risks are priced,” Sabzwari said.
“The PSX Sustainability Index is our commitment to giving Pakistan’s capital markets a credible, transparent, and internationally comparable tool to identify companies that are not simply performing today but are building the resilience to perform tomorrow.”
Rigorous Methodology with Sector-Specific Weights
The PSI applies a materiality-adjusted scoring methodology across Environmental, Social, and Governance pillars. Unlike uniform checklists, sector-specific factor weights ensure companies are assessed against risks and opportunities genuinely financially relevant to their business.
Companies are assessed against 21 material ESG issues—8 Environmental, 8 Social, and 5 Governance, identified through research on leading international methodologies including MSCI, FTSE Russell, S&P Global, and SASB Standards.
The index targets the top 100 listed companies based on free-float market capitalization, with exclusions for businesses engaged in tobacco, alcohol, adult entertainment, and controversial weapons. Companies must achieve an overall ESG score exceeding 50%, with minimum 40% scores in each pillar, to qualify for inclusion.
Ranking incorporates 30% weight to free-float market capitalization and 70% to aggregate ESG score, with recomposition twice yearly based on annual sustainability reports.
Addressing Pakistan’s Climate Vulnerability
The initiative comes as Pakistan faces significant climate challenges. The concept paper notes that Pakistan requires an estimated USD 348 billion between 2023 and 2030 to implement climate commitments and build resilience, roughly USD 50 billion annually.
SECP has issued revised ESG Disclosure Guidelines (2025) creating a standardized reporting framework, with mandatory implementation planned for 2029, alongside phased IFRS S1 and S2 adoption. The Pakistan Green Taxonomy (2025), developed with the Ministry of Climate Change and the State Bank of Pakistan, classifies sustainable activities using a traffic-light system.
