A vision for navigating volatility
Mercuria's CFO, Guillaume Vermersch, discusses how technology, sustainability, and strategic agility influence contemporary finance in international energy and commodities trading....
Sustainability
Soft power, hard results: Making the case for active ownership
The climate transition won’t happen from the sidelines. Active investors must step into the conversation, ask better questions, and hold capital to a higher standard.
For close to a decade, I’ve been involved with sustainable investing. And during that time, one idea has grown steadily clearer: passive capital allocation alone will not drive the climate transition. If we are serious about reducing emissions, changing corporate behavior, and protecting long-term value, then we need something more direct, more dynamic, and more human.
We need active engagement.
From 2014–2024, the sustainable fund universe saw tremendous growth, peaking in 2021 and slowing thereafter. Within that, the balance has tipped decisively from active to passive. Early on, actively managed sustainable funds drew the bulk of inflows, but currently, passive funds are capturing most new sustainable dollars.
Sustainable exchange-traded funds (ETFs) have steadily increased their slice of the pie, now accounting for over 20% of global sustainable assets under management. Even as overall flows into sustainable funds have shrunk, index-based ESG funds continued to enjoy net inflows, while many active ESG funds saw net outflows.
At Pictet Asset Management, we run active investment strategies – not passive sustainable ETFs – so stewardship and engagement are central to our approach. We see the deliberate use of our influence as shareholders to drive change not just as a moral imperative, but a financial one.
It’s also a competitive advantage. Unlike most passive investment products – including many ETFs that track indices and have limited capacity to influence corporate behavior – our active strategies allow us to speak directly with company management. We use our position as shareholders, our analysis, and our ability to engage to help guide companies toward more sustainable outcomes.
That influence is not only a tool. It is a responsibility that reflects our dual purpose: we want to see share prices improve (that’s a given), but we believe that one of the most reliable paths to value creation is through improving environmental, social, and governance (ESG) performance.
Better governance, environmental stewardship, and socially responsible practices are increasingly seen not as trade-offs, but as contributors to long-term value, particularly when embedded in strategy, not bolted on.
I work with our responsible investment colleagues to identify where we can make the greatest impact.
Active engagement in practice
At Pictet AM, engagement is integral to how we invest. As a portfolio manager on the thematic investment team, I work with our responsible investment colleagues to identify where we can make the greatest impact. We construct portfolios and engage in direct dialogue with company leadership. In practice, this means speaking with senior executives and board members to raise concerns, propose improvements, and push for measurable progress.
“High-energy facilities such as data centers and semiconductor fabrication facilities require stringent sustainability standards, and suppliers that fall short risk being excluded.”
An approach that gets results
In some cases, we work with management to help set more ambitious environmental targets. In others, the focus is on board composition; for example, encouraging companies to appoint directors with experience in environmental risk where that expertise is lacking. These may appear to be governance issues on the surface, but they are often the levers that enable deeper operational change.
A recurring focus in our engagements is executive compensation – specifically, how it can be aligned with sustainability outcomes. While many companies already disclose pay structures linked to financial key performance indicators (KPIs), we encourage them to go further by integrating ESG-related metrics, such as cuts in carbon emissions or reductions in energy intensity.
The intent is to ensure that environmental targets are reflected in leadership incentives – embedding sustainability into core business strategy, rather than treating it as a secondary objective.
Some engagements focus on the operational level. In one case, we worked with a US-based building-products distributor to push for a higher level of disclosure of its products that have third-party environmental certification, which is a prerequisite for clients involved in large-scale infrastructure projects.
High-energy facilities such as data centers and semiconductor fabrication facilities require stringent sustainability standards, and suppliers that fall short risk being excluded. Here, the case for action was as much commercial as it was environmental.
This company was also transitioning its logistics business to an electric fleet. In this case, we focused our engagement on the practical roll-out timeline of this fleet. Various elements, such as charging infrastructure and fleet management, were discussed.
This kind of sustained engagement requires active ownership. While passive funds may hold the same companies, they typically don’t engage in active stewardship; they don’t vote purposefully or initiate dialogue with management. As active investors, we have the access and the responsibility to do so, and we believe that using that access can create long-term value for shareholders.
Measuring success, one KPI at a time
For each engagement, we aim to set clear, company-specific targets, often tied to measurable outcomes such as operational milestones. In the case of a fleet transition, for example, we would track progress against the stated goal and timeline of fleet deployment. Metrics vary depending on the issue, but all are tailored to the business.
Over time, these benchmarks help guide the conversation and hold companies to account.
But engagement is not always easy. One of the biggest hurdles is simply the mindset of company management. Some management teams are proactive and deeply informed. Others are less engaged, or, at times, even unaware of where they stand relative to peers.
We often use benchmarking as a wake-up call. If a company is behind its competitors on disclosures or targets, we show them. Peer pressure can be a powerful motivator.
But perhaps more importantly, we always frame our arguments in terms of business impact. We don’t show up with moral lectures. We show up with a commercial case: improving sustainability ultimately supports shareholder value.
This pragmatic lens matters, especially in regions where ESG has become politicized. In the US, for instance, the term may be controversial, but the actions are not. Companies may avoid the label, but the underlying business drivers remain unchanged.
What is clear from our experience is that well-designed engagement strategies can push companies to act where passive capital cannot.
The next phase of stewardship
Looking ahead, I expect engagement to become more targeted and data-driven. We’re already seeing better disclosure from companies, thanks to both regulatory pressure – especially from the EU – and investor demand. As that data improves, our ability to make specific, measurable asks will improve as well.
We also see engagement becoming more collaborative. Many large-cap companies are hesitant to engage with individual investors. In those cases, we join forces with peers – through industry bodies and collaborative initiatives – to present a united front. This gives us more leverage and ensures that the conversation stays constructive and forward-looking.
Active engagement is not a silver bullet, but it is one of the most direct tools investors have to influence real-world outcomes while protecting long-term value. It requires structure, persistence, and a clear sense of purpose. It also requires access and the willingness to use it.
What is clear from our experience is that well-designed engagement strategies can push companies to act where passive capital cannot. Whether it’s pressing for board-level expertise, linking executive pay to decarbonization, or tracking emissions reductions over time, each step creates pressure, alignment, and, ultimately, accountability.
For investors, the takeaway is this: if we want to be part of the climate transition (not just observers of it), then we need to step into the conversation. We need to ask better questions, track clearer metrics, and work alongside others when needed. Engagement may be a soft power, but when exercised consistently and creatively, it can move even the most entrenched companies.
The climate challenge will not be solved by the reallocation of capital alone. It will be shaped by the quality of the questions we ask, the expectations we set, and the capital we are willing to hold to a higher standard.
Authors
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