Greater environmental awareness amongst the general public and its impact on markets – dubbed the ‘Greta effect’ after teenage activist Greta Thunberg – could be around for many years to come, according to M&G Investments’ Maria Municchi. 
Municchi, deputy manager of the £980.7m M&G Episode Income fund, said investors have been asking what the longer-term impact the ‘Greta effect’ could have on markets.
She said: “A question I have often been asked lately is ‘is the Greta effect going to last?’ How much influence is this public figure going to have and are the social movements she inspired really going to transform our society?
“The honest answer is [that] I don’t know, but human psychology in the time of social media would suggest that something else will soon capture public attention and imagination.”
Municchi – who is also lead manager of the £13.2m M&G Sustainable Multi Asset fund – added: “However, what is not going away are the facts underpinning today’s society and the role they play in shaping the economic framework we operate in.”
The multi-asset manager said socio-economic trends over the past 150 years have brought great improvement to wellbeing and life expectancy, while lifting millions out of poverty.
Rising global populations and economic growth, along with rapid industrialisation, globalisation and technological innovation, contributed to the period known as the ‘great acceleration’.
Yet, the ‘great acceleration’ has been accompanied by other Earth-system trends such as the intensification of biosphere degradation, increase in stratospheric ozone and a rise in carbon emissions.
“Manmade changes to the planet have been so significant in the last 150 years that scientists are referring to our times as a new geological epoch: the ‘Anthropocene’, where ‘the total amount of concrete ever produced by humans is enough to cover the entire Earth’s surface with a layer two millimetres thick’,” she said.
Earth system changes have become extremely important to the economic system, with the value of ecosystem services estimated at $125trn or 1.5x global GDP, according to the World Wide Fund for Nature.
“Most of the economic models through which countries and central banks used to assess the state of their society and the direction of their policies failed to include such important factors,” said the M&G manager.
“Those models have been built around linear economic systems where the natural environment is pretty much ignored, and with it the cost to society of exploiting and altering natural resources by sourcing materials or disposing waste – it being plastic, food or CO2.”
She added: “As we learn what the actual cost of such activities is and start to attribute an actual dollar price to it, our system can evolve towards a more circular economy.”
Nevertheless, the move to a more circular economy will require substantial product innovation (given that many are difficult to recycle), a change in consumption (towards more shared use) and renovation of some sectors, said Municchi.
However, while such a new type of economy might require more investment initially, there could be numerous cost efficiencies in the long term and pent-up demand among consumers.
“The market has been good at providing what people want, the question is whether consumer demand is sufficiently long-term and inclusive,” said the multi-asset manager.
“We can be cynical about the ‘Greta’ effect, but in so far as it shapes consumer tastes it can play an important role in harnessing capitalism to provide positive outcomes for the planet.”
As such, companies with a longer-term focus capable of becoming more environmentally and socially aware will gain a competitive advantage and create value for shareholders, said the M&G Sustainable Multi Asset manager.
This will require government support in the form of more supportive regulations, tax incentives and fiscal policies, however.
“In particular, the financial sector has an important role to play, not only because it provides the ‘fuel’ to such transformation, but also because of its inter- and intra- sectors influence which enables it to drive different aspects of the sustainability agenda,” added Municchi.
Meanwhile there are signs that attitudes and sentiment are beginning to change, such as correct pricing of natural resources, the development of the green bond markets and the increased integration of ESG (environmental, social & governance) factors into investment.
The fund manager concluded: “Looking ahead, the ‘Greta effect’ might fade but a sustainable economy might well become the reality.”
Performance of fund vs sector since launch
Source: FE Analytics
The M&G Sustainable Multi Asset fund has made a 6.27 per cent total return since launch compared with a 7.19 per cent gain for the average IA Mixed Investment 20-60% Shares peer. It has an ongoing charges figure (OCF) of 1.25 per cent.