Like a game of Jenga, we keep whittling away at the building blocks of the Earth to make new things to precariously pile on top. But actuaries can help anchor the wobble, says Sandy Trust
Jenga is based on a Ghanaian block stacking game. Players build a tower from 54 wooden blocks, with three blocks in each layer – so 16 layers high. They take turns to remove blocks and place them on top of the tower, which becomes higher and less stable until it collapses. The objective is to avoid being the player who triggers the collapse.
In ‘Earth Jenga’ the 54 wooden blocks are painted, with 35 blue blocks and 19 green.
This represents the Earth system and our natural resources, with the green blocks representing land-based resources and the blue representing water-based resources.
Every time a block is removed in Earth Jenga, it is painted yellow before it is placed on top of the tower.
The yellow represents human wealth – produced capital (such as roads, buildings and ports) and human capital (such as health and education). Human wealth and society rest on the ongoing stability of our Earth system, which provides inputs to our economy as well as the food, water and air we need.
Human wealth increases as we remove natural resources such as water, timber and fossil fuels from the base of the tower and convert them into goods and services. More wealth leads to jobs, education, improved medical care, better food and so on – which is why it makes sense to focus on GDP and profit. According to the non-profit Gapminder, rich people live longer than poor people, so there is something in this. Whether the rich people are happier is a different question.
The blue and green blocks can also regenerate. Provided we don’t eat too many fish, more fish will replace the ones we eat – a truly sustainable resource. We could take a blue block representing fish, turn it yellow and then re-grow a blue block. Our tower of human wealth would get higher while remaining on a stable Earth system foundation.
If we use up the blue and green blocks more quickly than they regrow then, as with traditional Jenga, the tower becomes taller but more unstable. There is more human wealth, but also a higher risk of collapse.
Earth Jenga is a simulacrum of our extractive economy, in which we have busily been converting natural resources into human wealth. We pick out blue and green blocks and paint them yellow, focusing on height rather than stability.
Sir Partha Dasgupta’s 2021 independent review for the government, The Economics of Biodiversity, estimates that per capita global natural capital shrunk by 40% between 1992 and 2014. Over that period, Earth’s population grew from around five billion to nearly eight billion. Total wealth ballooned to around US$500trn, although it is spread unevenly, with the richest 1% owning more than the poorest 55%. Dasgupta estimates that we are over-consuming global resources at a rate of 70% – in other words, we would need 1.7 Earths to sustain our current consumption rate. Our tower is starting to sway.
The winning players
Actuaries wield enormous influence in the global financial system – we are a disproportionately powerful Earth Jenga team, given our tiny numbers. We can influence global capital allocation in long-term savings in a way few other professions can, on top of our role in the insurance markets.
However, to do this we need a broader definition of risk and returns than we’ve traditionally used. In the long-term savings industry, we need to work out how to provide low-carbon and nature-positive Earth system returns alongside financial returns. It will be hard to avoid losing Earth Jenga if we don’t stabilise the climate, or if the biosphere ceases to function.
The carbon element of this is moving quickly, with methodologies becoming established to understand the carbon characteristics of portfolios both today and in the future – as we do for financial characteristics. While it is more complex, nature is a fast follower: it is currently three to five years behind carbon when it comes to establishing ways to measure and manage a portfolio’s nature positivity.
There is a real opportunity for actuaries to embrace these changes and lead on this recalibration of our economy. Failure to do so will raise the risk that actuaries will be seen as increasingly irrelevant in a world of sustainability, with technology eclipsing much traditional actuarial work. Perhaps more importantly, we may continue to unwittingly allocate capital today to the certain destruction of capital in the future – blindly playing an outsize role in a catastrophic Earth Jenga loss.
Sandy Trust works in financial services on climate change and sustainability