2021-11-19 (RBC Capital M) RBC Imagine - Preparing For Hyperdrive

Preparing for Hyperdrive
Themes that will Define Our New Future
EQUITY RESEARCH | NOVEMBER 18, 2021
For required Non-U.S. Analyst and Conflicts Disclosures,

see page 259.
Disseminated: Nov 18, 2021 19:01EST; Produced: Nov 18, 2021 19:01EST
RBC Imagine™ Preparing for Hyperdrive - Themes that will Define Our New Future
A message from the Directors of Research

Get ready for accelerated disruption. As we think forward to the future, progress will be faster
than it has ever been and it will not be linear. Just as we did in our Landmark 2018 Imagine
Report, in this thought leadership study we have taken a global, cross-sector approach to
determining the themes that will define our new future. Challenging our global research teams
in their respective areas of expertise and coming together to share ideas in recent months, we
identified five key themes investors and executives alike across all industries must collectively
understand to prepare for the years ahead. The themes are:
1. The Quest for Immortality – Biopharma breakthroughs, life science real estate, 5G, autos,
consumer wellness, space exploration and more come together to increase life
expectancy rates globally.
2. The Individual Revolution – Data monetization, blockchain, gene editing and an evolving
gig economy put the individual front and center like never before.
3. Artificial Intelligence Activated – This is no longer a drill. The path is set for the latter
stages of AI to be integrated into our global economy. Don’t be left behind.
4. Hybrid Living – Our physical and digital worlds are rapidly combining, suddenly becoming
indistinguishable and the implications are radical.
5. The Great Balancing Act – An accelerating rate of change on multiple fronts has the
potential to create unprecedented instability. Resources are constrained and as we make
tremendous forward progress on global sustainability, we must always keep in mind the
other side of the coin. Innovation will thrive and new tensions will arrive.
Each of these themes are supported in depth by examples from across industries in the report
we present today; and we have conviction that understanding these themes will enable
investors and companies to better take advantage of opportunities as they present
themselves. What’s important when consuming this content, is to think tangentially. Just as
we have, consider how future developments in one industry will impact your own or another.
In order to translate these themes into action, we have also published an accompanying RBC
Imagine™ Best Ideas List highlighting the companies we believe are best positioned to take
advantage of the themes identified over the long term. As always, ESG considerations
continue to evolve and remain fully integrated in RBC’s fundamental research process.
We encourage you to read on and welcome you to partner with our Global Capital Markets
Research team of over 190 analysts, macro strategists and associates, covering over 1,400
companies. Wishing you continued success as we journey into the new future together.
Graeme Pearson Andre-Philippe Hardy Mark Odendahl Michael Hall

Global Head of Head of Canadian & Head of U.S. Research Head of European
Research APAC Research Research & Global
Head of Product
Management
November 18, 2021 2

Table of contents
Executive Summary .............................................................................................................. 4
The Quest for Immortality .................................................................................................... 9
The Individual Revolution ................................................................................................... 47
Artificial Intelligence Activated........................................................................................... 93
Hybrid Living .................................................................................................................... 121
The Great Balancing Act ................................................................................................... 153
Imagine Industry Implications .......................................................................................... 223
All values in USD unless otherwise noted. Priced as of market close, November 17, 2021 ET, unless otherwise noted.
November 18, 2021 3

Executive Summary
The RBC Imagine™ research brand is a series of research reports focused on disruptive forces
that we expect will transform the world, and is intended to help investors and organizations
plan for the future. Our initiative began with a Landmark 2018 Imagine Report that presented
six original cross-sector themes that would define the future, and with this report we further
evolve those themes for the new world we see ahead. This report is comprehensive, global
and cross-sector in nature, designed to prepare readers for the opportunities (and challenges)
ahead, and made actionable with the publication of our RBC Imagine™ Best Ideas for the Long
Term list. The ideas list highlights the companies in each sector and region across our coverage
we believe are best positioned to take advantage of the future themes we identified over the
long term. We have conviction Environmental, Social and Governance (ESG) considerations
will only continue to play an increasingly important role in determining future outcomes and
have thoughtfully integrated ESG into our future thematic framework and best ideas list.
Why you should read on

Under-the-radar disruptive We see an arbitrage opportunity. The RBC Imagine™ brand challenges the status quo of the
biotech products, often short-term nature of asset pricing and analysis. While valuations are theoretically the
present value of all future cash flows, the vast majority of discussion tends to focus on the next
technologies, and even
quarter (optimistically, 1 to 2 years), and rarely is the time and effort taken to think 5, 10, or
epidemiological or legal
even 15 years into the future. Yet it is on this time scale that we can attempt to identify key
developments which could
emerging structural themes and drivers. With this in mind, we engaged in strategic scenario
transform the sector.
planning and forecasting, with the key themes and takeaways presented here in this report.
To arrive at these findings we asked how the emerging future trends and addressable markets
in one industry are going to impact another, bringing to light both opportunities and risks.
Our future-defining themes

Our future-planning process culminated in five major, global, cross-sector themes we believe
will define the future. These are: The Quest for Immortality, The Individual Revolution,
Artificial Intelligence Activated, Hybrid Living, and The Great Balancing Act.
The Quest for Immortality

Emerging from the COVID-19 pandemic we see the simultaneous combination of
breakthroughs in medicines and therapeutics (mRNA vaccines), further advancements in
healthcare availability (telemedicine), improving transparency in the food/health connection,
living conditions and other scientific/technological improvements likely to extend lifespans at
an accelerated rate over the coming decade. However, how these dynamics play out across
the global population could create a clear divide among populations based on income,
demographics and infrastructure.
The Individual Revolution

Social media, immense amounts of personal content and consumer-first applications are
shifting the balance of power away from traditional institutions and into the hands of
As consumers' individuals. This will create a new world order in every aspect of the global economy and will
environmental and health likely be the single biggest disruptive force to existing centers of power. In addition, it could
concerns mount and create new economies such as the monetization of personal data (and the associated
innovation provides more parameters around that data ownership). Consequently, as power shifts away from
appealing alternatives, institutions to individuals, global societies will deal with both the positives and negatives.
plant-based food
penetration will increase Artificial Intelligence Activated
rapidly. While we are some time away from the general-purpose artificial intelligence that science
fiction cautions us about, AI is becoming a critical component to all aspects of business. The
battleground for AI is now migrating from understanding its potential and acquiring
capabilities to putting the concept into action. And while AI brings plenty of benefits (solutions
November 18, 2021 4
that learn and improve over time, more powerful software to automate mundane tasks, etc.),
it also brings with it many risks, including security concerns and the potential for
unprecedented job displacement/transition.
Hybrid Living
Our environment is increasingly becoming inclusive of our physical space as well as our digital
world. As augmented and virtual reality continue to become more user friendly and easier to
access, the lines between the physical and digital will continue to blur. This will have significant
implications on how we interact as a society, the acceleration of workplace productivity, the
creation of new opportunities to engage consumers and customers, and will become the
catalyst for entirely new business models, including progress on diversity and inclusion across
organizations.
The Great Balancing Act

An accelerating rate of change on multiple fronts has the potential to create unprecedented
instability. Conflicts will arise between countries, among sub-populations and across regions
on an increasing number of fronts, as well as behind the scenes. On top of a pickup in
The rise of resale, the next cyberterrorism activity, we believe new physical, cyber and trade conflicts will arise,
frontier for luxury brands, particularly related to climate change, including the race for critical commodities to fuel the
identifying the best ideas energy transition, agricultural nationalism and climate change targets and policies. Even basic
and early strategies. systems like democracy and capitalism are set to undergo dramatic change. Within individual
entities themselves, societies, corporations, institutions and even individuals, will face internal
tension balancing speed and near-term costs as they strive to make progress in this
increasingly complex global context.
Imagine industry implications

Consumer
The movement towards a healthier lifestyle has been one of the most important consumer trends
over the past few years, it has accelerated during the pandemic, and we believe will become even
more important over the next decade driving the Quest for Immortality. Within the Individual
Revolution, advances in science and the “shrinking” of technology will enable consumers to
receive real time feedback on their lifestyle—heightening the need to develop more customized
products that leverage their personal data. AI will accelerate R&D and reduce times to market,
and consumer product needs will become fully anticipated. For Hybrid Living, brand building is
redefined to the virtual world in video games, NFTs become a new luxury and stores transition
from selling locations to event hubs. The tradeoffs between sustainability and price lunge to the
forefront and multinational companies will seek to localize their business, increasing autonomy of
local regions, and find new ways to secure raw materials in The Great Balancing Act.
Energy and Utilities

Extended lifespans would elongate the tapering tail end of the oil demand curve globally,
increasing energy demand and requiring emerging technologies such as nuclear fusion
(especially from small modular reactors) as well as decarbonizing fuels (e.g., hydrogen,
The global energy storage renewable natural gas) for combustion turbines. In the Individual Revolution, the “Prosumer”
addressable market is rises where individuals will have increasing options to take greater control of their energy
slated to attract ~$1 trillion consumption. They will determine how and where their energy is produced and consumed
in new investments, (e.g., time of day, location), and take further steps to go "off the grid" or look to supply the
growing 20 times (30 times) grid with electricity via generation and/or connected battery storage. This enables individuals
over the next decade to to both monetize and secure their digital world at home. AI will coordinate the grid including
~220GW (676GWh) distributed battery storage, anticipate power demand and optimize maintenance schedules
that will enhance energy infrastructure integrity. Energy demand shifts to the residence in
Hybrid Living where more time is spent powering each person’s digital world and even virtual
oilfields emerge. For the Great Balancing Act, an aggressive energy transition appears set to
drive a bigger wedge in the socio-economic divide, so does this lead to a new era of
November 18, 2021 5
cooperation or a new front for division across classes and the developed and emerging world?
What is clear to us is that technology is poised to play a major role in offsetting politically
unpalatable rising costs.
Financials
On the Quest for Immortality, financial solutions will be required to pay for the greatest health
advancements, Buy Now Pay Later (BNPL) success at retail could very well translate to
healthcare, and consumer digital health records will even be incorporated into this financing,
effectively creating risk grades and/or rewards systems. Consumer lenders are also increasingly
focusing on healthcare financing. Further, with increased life expectancy, the demand for
sophisticated wealth management products only increases. In the Individual Revolution, self-
monetization is an increasingly prevalent theme as consumers start to realize the value of their
own data and exchange it for forms of utility, including customized insurance. Blockchain will
drive accelerated model change and at the consumer level digital currencies and stablecoins are
increasingly used to on-ramp financial transactions. With Artificial Intelligence Activated, risk
management and fraud detection become further strengthened and AI integration into trading
platforms and other financial decisions becomes critical. In Hybrid Living, it’s the digital customer
We are now more excited
interface experience that wins, with financial services customer experiences delivered
than ever about the
seamlessly for all products, across all devices. As part of the Great Balancing Act, institutions
potential Virtual Health
positioned to support the corporate transition towards sustainability stand to gain market share,
holds. The intention is not
while attracting potential valuation premiums for themselves; property & casualty insurers face
necessarily to replace in- rising catastrophe frequency and severity as climate and weather patterns inevitably change over
person care, rather the aim time; and crypto is becoming a new conflict currency.
is to make it more efficient,
effective and consumer- Healthcare
friendly. The dawn of a life science golden age begins, with drug development focusing more heavily
on biologics, cell therapies, gene therapies, and gene editing – shifting paradigms, ranging
from the targeting of previously undruggable cancer mutations to the correction of lethal
childhood muscular dystrophies; even aging itself begins to be tackled by biopharma
innovation in the Quest for Immortality. In the Individual Revolution, personalized
therapeutics make waves and move from rare diseases to more common indications,
expanding the total addressable markets and leaving fewer and fewer patients behind.
Further, the “hospital at home” comes to life as healthcare services evolve and smart implants
drive remote patient monitoring. Artificial Intelligence Activated simultaneously reduces R&D
costs, maximizing efficiency and alleviating broader healthcare industry labor shortages, along
with robotics surgery becoming the standard of care. Healthcare Hybrid Living is led by virtual
healthcare which brings high quality, complex patient care at a low cost, still in the early ages
of adoption amid a massive TAM (over $3T on healthcare spend annually in the US alone).
Even remote telesurgery becomes possible in our hybrid world. Globally however, a balance
will need to be struck between innovation and access, and we watch as China begins to
position itself as a biotech force.
What is clear is that HVAC Industrials

systems upgrades will be In the Quest for Immortality, automated smart vehicles will reduce fatalities, increase
needed to handle higher air productivity, and provide potential health monitoring benefits, while the Indoor Air Quality
exchange capacity, partly (IAQ)/Healthy Buildings trend presses forward beyond COVID-19, and space travel provides
driven by new potential the ultimate escape route. In the Individual Revolution, autonomous driving frees up
standards for indoor air passenger time making room for bespoke in-car media experiences, 3D printing offers a new
quality. paradigm for engineering design and manufacturing, along with new equipment to drive
forward the life science golden age, particularly as gene editing technology is developed.
Furthermore for autos, a lot of focus has been on the electrification of vehicles; we see a larger
potential change in connected, software enabled vehicles. For Artificial Intelligence Activated
in A&D we expect unmanned drones to fly as loyal wingmen in support of manned fighter
aircraft. In Hybrid Living, we are moving beyond “smart” manufacturing to complete end-to-
November 18, 2021 6
end connectivity across the supply chain allowing for significantly richer information and
flexibility. We believe with this dramatic increase in factory IoT devices, manufacturing could
be on the same cusp of scaling that the Internet saw when it scaled as devices moved from
mainframes to computers to smartphones. Water scarcity and security issues are growing at
an alarming rate in the Great Balancing Act, but solutions such as smart water and desalination
are spearheading the global challenges. Additional industrial innovations in waste fuel, marine
shipping and of course auto electrification all drive global sustainability forward.
Materials and Mining

Advanced healthcare deployment to the emerging world increases mine productivity on the
Quest for Immortality, and elongated lifespans and population growth could spur a
productivity boom in emerging markets, increasing the demand for metals, fertilizers, forest
products, specialty chemicals and packaging. Meeting increased energy demand from a
growing population while achieving net zero carbon targets will likely require maintaining and
growing global nuclear capacity, which should support long-term uranium demand. AI-enabled
understanding of orebodies will further drive improved mine sequencing and planning with far
We also expect metals less variance along with an ability to see into the mines’ future at less cost and effort. In Hybrid
markets to be highly Living, mines of the future could be operated completely remotely, though this could have
volatile as different supply unintended consequences for the finely balanced relationships with local communities whose
and demand shocks play economies are now dependent on the mine. The forestry industry could also adopt remote
through. operation. This brings us to the Great Balancing Act, where the dominance of China in many
metals, and a burgeoning requirement for the West to create supply chains of its own,
combined with these metals occurring in many non-traditional resource countries, often with
security and governance issues, will make the geopolitics of critical minerals rise in importance
over the coming decade. More specifically, we believe the market should keep a particular eye
on lithium, cobalt, graphite, nickel and copper and uranium given the likely need for new
production (versus current levels), the importance to green technologies as well as the
geographical supply concentration. The Substrate Wars also commence as consumer goods
packaging continues down the sustainability route.
Real Estate
The dawn of a golden age in life science development has direct positive implications for life
science real estate in the Quest for Immortality, in a virtuous cycle where increased life science
real estate development in top cluster markets in turn fosters collaboration driving further
innovation. Towers globally further enable virtual health connectivity, in turn saving lives. In
the Individual Revolution, the 3D printing of homes enables home customization affordable to
the masses. Artificial Intelligence and Hybrid Living drive substantial data center demand.
Meanwhile Hybrid Living has broad based transformative implications across retail, office,
logistics and residential as more people focus in virtual worlds at home. “Just In Case
Inventory” replaces “Just in Time Inventory” in a global supply chain more exposed to
macroeconomic shocks is an important development in the Great Balancing Act.
The pace of drug Technology, Internet, Media and Telecommunications

development will accelerate The rollout of 5G to rural areas and later emerging markets brings immediate healthcare to those
given an uptick in R&D in a virtual form who never had it before on the Quest for Immortality. For the Individual
funding along with key tech Revolution, new internet marketplaces provide the opportunity for a growing gig economy,
advancements, and in turn, though at times rapidly expanding profit pools lead to stress in the system between independent
should drive stronger life workers and corporates. Technology companies are the true leaders of Artificial Intelligence
science real estate demand. Activated, innovating automation software and leveraging information services data to provide
a crystal ball into the future. On Hybrid Living, similar to how public transportation and internal
combustion engines gave rise to the suburb, we believe modern technologies will further shift
the future workforce and populations to be even more distributed across regions and even
countries. We believe the economic, social, cultural, political and environmental impacts that the
November 18, 2021 7

second iteration of the Internet (often referred to as the “Metaverse”) will bring will be nothing
short of profound. Cyber-warfare, including that facilitated by non-state actors, drives the need
for increased cybersecurity in The Great Balancing Act.
Navigating Imagine industry implications

We reiterate each future theme is driven through developments across industries, though to
better help navigate the report’s themes, we highlight which industries are especially relevant
for each theme in the exhibit below.
Exhibit 1 - Navigating the RBC Imagine future themes by industry relevance
RBC Imagine Future Themes

The Quest for The Individual AI Hybrid The Great
Industries Immortality Revolution Activated Living Balancing Act
Consumer
Energy and Utlilities
Financials
Healthcare
Industrials
We created a Canadian
telecom M&A game with a Real Estate
playbook that attempts to Technology, Internet, Media and Telecom
Dark Blue = Relatively Most Impacted, Light Blue = Impacted
untangle and sequence
dynamics for investors to Source: RBC Capital Markets
better identify M&A

catalysts and evaluate
logical M&A outcomes. Putting it all into action
To put the thematic ideas presented in this report into action, we direct you to our separately
published RBC Imagine™ Best Ideas for the Long Term list. This list of 71 stocks spans across
sectors globally and it’s a list we see as differentiated in three material ways: (1) the ideas
directly play into our five themes; (2) we take a long-term view beyond traditional 12-month
price targets and ratings, which leads to the inclusion of a number of Sector Perform rated
names on the list; and (3) ESG considerations are directly linked to our list.
Always evolving
We note our future defining themes are different from, but certainly rhyme with, the original
themes presented in our Landmark 2018 Imagine Report – they have just evolved. The
Artificial Intelligence Race has since progressed from the once theoretical to the absolutely
practical as we look forward with Artificial Intelligence Activated. The original Calibrated and
Augmented Self theme on personalization and Collective Action theme on individuals coming
The conversations around
together to drive change merge into Individual Revolution. Our prior Escalating Uncertainties
the energy transition are
theme evolves into the Great Balancing Act as we continue to navigate environmental, social
evolving rapidly. We believe
and geopolitical change forces across the globe. In Cloud We Trust has since manifested in our
the majors have potential
view, as investors and organizational leaders alike now recognize cloud will have a meaningful
to present themselves as
role in the future across sectors, as it continues to through this report, especially as the
‘part of the solution’ in key
underpinning of Hybrid Living. The Agility Imperative theme, which was a call to action for
areas that require
organizations to reinvest and prepare for the unexpected will always remain relevant, though
substantial scale.
is now more clear in a post COVID-19 world. The Quest for Immortality emerged as a new
theme from our future planning process, as we analyzed the simultaneous, future
developments across industries that will come together to extend lifespans at an accelerating
rate. We will continue to evolve and provide additional insight on thought provoking Imagine
ideas with research reports like those you see here along the margin. As always, we encourage
you to reach out to the team with any questions; we are here to help and look forward to
continuing on this journey with you together.
November 18, 2021 8

The Quest for Immortality
Table of contents
Quest for Immortality – Introduction ................................................................................. 10
Biopharma: The dawn of a life science golden age ............................................................. 12
Life science real estate: Collaboration drives innovation .................................................... 16
Home Healthcare: The emerging value proposition ............................................................ 18
Telecom: The 5G health factor ........................................................................................... 22
Autos: An accident-free world ............................................................................................ 24
Multi-Industry: Indoor air quality and healthy buildings .................................................... 28
Healthcare services: Putting employee health first............................................................. 30
Consumer: The rising trend of self-care .............................................................................. 33
Plant-based foods: The great win-win ................................................................................ 35
Buy Now, Pay Later (BNPL): The healthcare edition ........................................................... 37
Seniors Housing: Adapting to accommodate shifting needs ............................................... 38
Energy: Longer life = massive implications for emerging markets oil demand .................... 39
Energy & Utilities: The hydrogen power solution ............................................................... 41
Space: To eternity and beyond ........................................................................................... 45
November 18, 2021 RETURN TO TOC 9

Quest for Immortality – Introduction

The Quest for Immortality: Emerging from the COVID-19 pandemic, we see the simultaneous
combination of breakthroughs in medicines and therapeutics (mRNA vaccines), further
advancements in healthcare availability (telemedicine), improving transparency in the
food/health connection, living conditions and other scientific/technological improvements
likely to extend lifespans at an accelerated rate over the coming decade. However, how this
dynamic plays out across the global population could create a clear divide among populations
based on income, demographics and infrastructure.
Let’s face it: as human beings, we love life, and we want more of it. The drive to live longer,
healthier, better lives is not new – stories about the fountain of youth date back to the 5th
century B.C. And while immortality in itself remains elusive, science has dramatically
accelerated our goals. Global life expectancy has doubled since 1900, and in just the past
decade, prior to COVID-19, it went up by another six years. Inequalities clearly remain, but
since 1950 almost all parts of the world have benefited dramatically from this surge.
Cellular therapies, mRNA
vaccine technologies, gene The science underpinning our quest for longer, healthier lives will no doubt continue
manipulation, personalized accelerating, as we move into a full innovation revolution in medicine and technology. Years
medicine – all concepts that of accumulating breakthroughs, starting with the Human Genome Project and intensifying
seemed unrealizable just with new modalities for drug discovery and delivery, have pulled forward our understanding
10–20 years ago – are now of disease biology and given us new tools to tackle challenging diseases and improve the
integral parts of our arsenal human health-span. Cellular therapies, mRNA vaccine technologies, gene manipulation,
for preventing and treating personalized medicine – all concepts that seemed unrealizable just 10–20 years ago – are now
illness. As we sit on the cusp integral parts of our arsenal for preventing and treating illness. As we sit on the cusp of major
of major further further developments in brain health, genetic medicine, and cancer, it is clear that such
developments in brain innovations are showing no signs of slowing down. Manufacturing demands are likely to
health, genetic medicine, continue to grow and shift as the drug development landscape continues to evolve, as well.
and cancer, it is clear that How all of these innovations are paid for will likely continue to be a key topic of societal and
such innovations are political debate, as expensive development pathways escalate the price of novel treatments
showing no signs of slowing and curative therapies require novel payment modalities.
down.
It’s not only about better medicines – how healthcare is delivered and consumed will also play
a major part in shaping our future healthier and more resilient selves. Telemedicine came into
the spotlight during the pandemic, but even when COVID-19 wanes it is likely to improve the
efficiency of healthcare interactions. Telemedicine claims, while down off of peak pandemic
highs, are still up over 2000% vs. pre-pandemic levels, and the integration of more seamless
interactions with caregivers should further improve disease recognition and treatment,
enabling people to take better control of their health-related decisions. This individual
empowerment is likely to go beyond patient–caregiver interactions as well. Beyond the
doctors’ offices – be they physician or virtual – wearables will enable people to better track
and manage their health and fitness, with AI technology helping interpret results in real time.
And 5G will allow expanded connectivity across underserved areas, breaking down barriers
and facilitating more equitable access in the pursuit of better, healthier lives.
Our push towards these goals will affect how we eat, work, and even our consumer choices.
Younger generations continue to prioritize healthy, sustainable foods, and innovations in these
areas are likely to be driven by start-ups. Workplace well-being is increasingly becoming an
expectation rather than just a privilege, with corporations likely to increase their alignment
with employees on such initiatives. Air quality in office buildings, largely ignored prior to the
pandemic, will likely take center stage to protect against the spread of future contagions. Even
the cars we drive will be more heavily scrutinized for their safety not only for passengers but
also pedestrians, as the shift towards autonomous driving continues.
Companies that can predict and take advantage of the invariable resulting demographic shifts
could emerge as beneficiaries over the next decades. An aging population is likely to have
different medical needs, consumer tastes, and even political inclinations. Additionally, the
decades-old view of the elderly spending their last years in nursing homes could evolve
towards more comprehensive living centers catering to a more vigorous, interactive older
generation where physical therapy, wellness, and exercise facilities become increasingly
incorporated – not to mention a potential evolution in family living dynamics. The different
Ensuring the innovations in ways a growing population increases our global energy demand will also force a further re-
healthcare and technology examination of novel solutions like hydrogen power, which may become increasingly
reach across classes and mainstream.
geographies will be crucial
so as not to intensify our These changes will not be without their challenges. While we tackle some, other diseases of
economic and political aging are likely to emerge, and companies and society will need to be poised to combat these
divisions. And control of our and improve the way we fund and deliver them. Breakthrough therapies and vaccines may
data (discussed more bring an end to the dominant phase of COVID-19 and enable a lifespan rebound, but this is
extensively in subsequent also likely to expose longer-term problems brought about by the past two years of disruption
sections) will become – including mental health issues, long COVID-19, and education gaps. Ensuring the innovations
particularly important as in healthcare and technology reach across classes and geographies will be crucial so as not to
our health visits, records, intensify our economic and political divisions. And control of our data (discussed more
and real-time monitoring extensively in subsequent sections) will become particularly important as our health visits,
are digitized. records, and real-time monitoring are digitized.
The quest for improved health is likely to permeate society in more ways than ever. How we
pursue our dream of immortality and react to the changes it brings about will be core to how
we invest – and live – in the future.

Biopharma: The dawn of a life science golden age

A core tenant of our “Quest for Immortality” directly comes down to life science and the
culmination of factors that will drive an inflection in life science innovation. It all simply starts
with our biology. Our understanding of biology has evolved dramatically over the past 30 years
Looking beyond biology, we with initiatives such as the Human Genome Project, the discovery of the gene-editing tool
also now have the tools to CRISPR, and insights into neural circuitry brought on by techniques like optogenetics. This has
better translate these led to a greater awareness of cellular pathways and the uncovering of novel targets and
breakthroughs into clinically relevant biomarkers across disease areas, all of which are accelerating the pace of
therapies, with more drug discovery. These basic biology breakthroughs have enabled an ability to precisely target
powerful computational therapeutics, such as with synthetic lethal approaches in oncology (BRCA2-/- tumors are highly
algorithms for drug sensitive to PARP inhibitors), precise correction of genetic mutations (in Duchenne muscular
discovery and molecular dystrophy), and novel mechanisms to target depression (NMDA and GABA). In turn, these
modeling, more developments have opened the door for future approaches that leverage gene editing and our
representative preclinical growing understanding of the brain and tumor biology. Looking beyond biology, we also now
animal models for efficacy have the tools to better translate these breakthroughs into therapies, with more powerful
and toxicology screening, computational algorithms for drug discovery and molecular modeling, more representative
and greater scalability for preclinical animal models for efficacy and toxicology screening, and greater scalability for
complex cell and gene complex cell and gene therapy manufacturing. We believe biopharma is poised to leverage
therapy manufacturing. this greater understanding into the next set of medicinal breakthroughs, which can lead to a
flurry of new medicines by the end of the decade that can enhance lifespans and quality of
life.
Funding boost should allow companies to aggressively pursue R&D projects

Public/private capital post COVID-19
funding also noticeably The life science industry is critical to reduce healthcare costs, enhance quality of life, and
jumped to ~$80B in 2020 protect against pandemics. The COVID-19 pandemic highlighted the need to advance medical
from the prior four-year research to protect not only the vulnerable population, but also the general economy and our
trailing average of ~$35B, way of life. The U.S. and governments across the world recognized this need, and private
which should also help fund investors noted the significant potential returns. Both are plowing capital into the space. The
research. Biden Administration has proposed increasing the NIH budget by 21%, to $52B in FY22, in order
to fund and advance basic research. This specific research is the foundation upon which life
science companies can develop new, cutting-edge treatment options. Public/private capital
funding also noticeably jumped to ~$80B in 2020 from the prior four-year trailing average of
~$35B, which should also help fund research. This trend has continued with the sector raising
~$50B YTD through mid-October (~$60B annualized). There are ~10K known diseases in the
world, but only 500 are currently addressable with treatment options, according to Alexandria
Real Estate Equities (ARE) – creating substantial opportunity for further life science progress,
in our view.

Exhibit 2 - Public/Private funding popped in 2020 and remains strong today
$90,000
$80,000
Total Capital Raised ($M)

$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
2014 2015 2016 2017 2018 2019 2020 YTD
IPOs Private Placement Follow-Ons VC/PE
Source: Factset and RBC Capital Markets Note: IPOs, Follow-Ons, and Private Placements only include those listed on NASDAQ/NYSE exchanges; Values
through 10/15/2021
Conquering infectious disease – Novel vaccines developed in

2021 matter
The mRNA vaccines by The COVID-19 pandemic showcased how rapidly and effectively mRNA-based vaccine
Pfizer/BioNTech and technology can be deployed. The mRNA vaccines by Pfizer/BioNTech and Moderna were
Moderna were developed developed and approved for use within 10 months (with full approval 8 months later). This is
and approved for use within substantially faster than even the relatively speedy ~5-year timeline for an Ebola vaccine and
10 months (with full the ~9-year timeline for the Shingles vaccine, which speaks to the technology’s ability to be
approval 8 months later). quickly leveraged for new and emerging infectious diseases. Beyond COVID-19, we see likely
next steps for mRNA vaccines as other respiratory viruses such as flu and RSV, and possibly
This is substantially faster even chronic diseases such as HIV, where the market may be >$30B. Key questions remain,
than even the relatively particularly in light of growing vaccine skepticism, uncertainty over which adverse events may
speedy ~5-year timeline for be class effects and/or require additional monitoring, and the durability of the approach.
an Ebola vaccine and the Nonetheless, we expect these issues are likely to be worked out in the course of future
~9-year timeline for the development, and could see vaccines both using mRNA and improved traditional modalities
Shingles vaccine, which playing a revitalized role in human health span globally – with the recently approved malaria
speaks to the technology’s vaccine potentially being the tip of the iceberg. We also sense significant appetite for cure
ability to be quickly approaches in infectious disease across technologies, with virology players such as Enanta
leveraged for new and Pharmaceuticals, Vir Biotechnology and Gilead working on small molecules (potentially for
emerging infectious combo use) to cure HBV. In the HIV space, we note Johnson & Johnson, Gilead, and Moderna
diseases. all pursuing cure approaches, with modalities including vaccines, immune activators, broadly
neutralizing antibodies, and small molecules.
Conquering cancer – Breakthrough therapies and novel

modalities lead the fight
Cancer therapeutics have evolved dramatically over the past five years, progressing from
cytotoxic chemotherapies to targeted immune agents, precision oncology approaches, and cell
therapies, and we expect progress to continue at a rapid pace. In particular, we see Gilead as
an innovative driver of new oncology approaches, starting with their leadership in cell
therapies, which harness the body’s own immune system to fight tumors. This class of drugs
has shown impressive results, with Gilead’s Yescarta showing 44% 4-year survival data in late-
line diffuse large B-cell lymphoma (DLBCL), as well as profound survival benefits and a 65%
complete response rate in the second line, which we sense should help CAR-Ts gain increasing
usage. We estimate cell therapy sales from Gilead alone could top $2.5B by 2030, and note a
number of new biotechs bringing forward the next generation of cell therapies, including off-
the-shelf approaches (Allogene Therapeutics, CRISPR Therapeutics AG), bispecific
approaches, long-lasting armored approaches, or new immune cell types which could offer a
superior safety/efficacy balance; Gilead is involved in many of these approach through its KITE
business unit, which has recently refocused on addressing hematologic malignancies.
We also see progress across biologic medicines, with traditional monoclonal antibody
approaches making way for new modalities such as antibody drug conjugates and bispecifics.
Therapeutics such as Incyte’s Monjuvi offers a long-term maintenance potential in DLBCL, a
potentially unique treatment paradigm that may change the way the disease is treated in the
frail or elderly. We believe Gilead has executed on a prudent BD strategy in oncology and
acquired a number of potentially exciting antibody approaches, including CD47-targeting Ab
magrolimab, which targets and blocks a cancer cell-cloaking signal and has optionality in
myelodysplastic syndromes (MDS) and acute myelogenous leukemia (AML). KOLs have
described it as a potential “home run” for these patients; the drug also has optionality in solid
tumors and lymphomas, and we believe Gilead has the potential to be first to market in this
increasingly crowded CD47 space. Gilead also has a partnership with Arcus Biosciences for
their unique anti-TIGIT, which promises a better safety profile while maintaining high efficacy
and combinability with other I/O approaches, and we see this class as potentially the next
complement to PD-1s. We also believe next-gen antibody approaches like ADCs – of which
Gilead’s Trodelvy is one – can improve patient outcomes in difficult-to-treat triple-negative
breast cancer by two-fold over standard of care, giving patients an extra six months of life;
other ADCs such as Daiichi Sankyo and AstraZeneca’s Enhertu can reduce the risk of disease
progression in breast cancer by 72%. In the meantime, bispecific antibodies such as those from
Roche, Genmab and Regeneron Pharmaceuticals offer the promise of CAR-T-like efficacy in
blood cancers, but with the potential for outpatient administration and significantly reduced
safety risks. Among these, we see IGM Biosciences as a potential platform company
positioning itself for the long term, with not only bispecifics based on its unique IgM antibody
platform, but the potential to use the 10–12 binding sites of IgMs to develop unique
therapeutics, such as agonists targeting the DR5 apoptotic pathway to kill cancer cells.
Vaccine technology may also be applied to oncology indications, such as with BioNTech SE’s
mRNA approach in melanoma, prostate, and other solid tumors, and T-cell vaccine technology,
leveraged by names such as Vir Biotechnology and Hookipa Pharma to target HIV, CMV, and
head and neck cancers. Though cancer remains a major public health issue likely to become
even more prominent with the aging population, our efforts to combat it have not shown any
signs of slowing down.
Brain health as the next frontier – significant advances coming

2021 saw the first approval over the next decade
of a disease-modifying We note that 2021 saw the first approval of a disease-modifying treatment for Alzheimer’s,
treatment for Alzheimer’s and despite the controversy surrounding Biogen’s Aduhelm, we see it as a likely herald of a
and we see it as a likely coming breakthrough in the treatment of Alzheimer’s, with new modalities and new targets
herald of a coming on the horizon from Biogen, Eli Lily & Co., Roche, Cortexyme, Denali Therapeutics and Alector
breakthrough in the among others. We sense a similar inflection point for Huntington’s disease (though perhaps
treatment of Alzheimer’s, more long term) despite multiple setbacks this year from Ionis Pharmaceuticals and Wave Life
with new modalities and Sciences, with new approaches from PTC Therapeutics and Neubase Therapeutics that have
new targets on the horizon. the potential to address some of the limitations of prior drugs, such as allele specificity and
biodistribution. With the 25% increase in anxiety and depression in 2020 in the U.S., COVID-
19 has also brought greater focus on mood disorders, where our greater understanding of the
brain’s chemistry has led to novel treatments on the verge of approval in depression,
Psychedelic therapy might
schizophrenia, and other disorders. SAGE Therapeutics’ zuranolone promises to treat
have the potential to
depression like an infection, with a short 14-day course to reset and restore the brain’s
further transform mental
chemistry; Karuna Therapeutics offers a drug with first new mechanism in schizophrenia in
health by improving patient
decades and can enable a combination treatment approach for the disease. Most of all,
outcomes with short-course
psychedelic therapy, led by companies such as ATAI Life Sciences and Compass Pathways,
treatments and a
might have the potential to further transform mental health by improving patient outcomes
differentiated safety profile
with short-course treatments and a differentiated safety profile to standards of care in
to standards of care in
treatment-resistance PTSD, depression, or opioid use disorders.
treatment-resistance PTSD,
depression, or opioid use
disorders. Longevity – The quest has truly begun
While immortality likely remains at the intersection of science fiction and philosophy, we note
that some biotechs have begun to approach longevity as a disease, or at least to weave the
concept into their mission. A review of U.S. clinical trial listings suggests that the number of
trials starting each year since 2011 addressing aging conditions has tripled from 85 to 255,
growing at a CAGR of 12%, and outpacing the growth of new trial starts in general (which grow
at ~6% annually) (Exhibit 3).
Exhibit 3 - The number of clinical trials addressing “Aging” has grown rapidly since 2011
While immortality likely

remains at the intersection
of science fiction and
philosophy, we note that
some biotechs have begun
to approach longevity as a
disease, and the number of
trials studying aging
conditions is growing
rapidly.
Source: clinicaltrials.gov
About half of these new trials are interventional, suggesting some form of treatment to address
the underlying condition, and therefore therapeutic potential. Some companies, like Unity, study
anti-aging therapies with a focus on ophthalmology, and despite setbacks, we note a growing list
of biotech start-ups focusing on longevity including BioAge, Life Biosciences, Google-backed
Calico, a number of anti-aging focused funds such as The Longevity Fund and SENS, and even a
$200M longevity SPAC. While disease specific approaches are an important step towards
addressing the human lifespan, we believe certain drugs may have broader applicability in
improving overall conditions, such as SAGE’s ‘718, which can improve cognition in healthy
volunteers without amphetamine-like effects, 89bio’s FGF21, which can broadly improve
metabolic health, and Intra-Cellular’s ‘214, which can potentially reduce neural inflammation
and improve cardiac function. These and other medicines could serve as potential starting points
to guide future anti-aging approaches. Though immortality is unlikely to be addressed in this
decade, we believe current work has the potential to lay the groundwork for identifying potential
causes, mechanisms, and eventually solutions, to human aging.

Life science real estate: Collaboration drives innovation

Life science real estate clusters in major research markets play a crucial role in creating a
collaborative eco-system that helps drive greater innovation – further accelerating life science
development on the Quest for Immortality. These markets generally have leading research
institutions (creates partnerships & talent pool), high-quality healthcare systems with a
teaching slant, as well as major biotechnology companies and other key service providers. Life
science clusters are difficult to create, but once established, success breeds success as more
firms look to build a presence to benefit from the ecosystem.
The uptick in laboratory real estate demand, in part driven by the pandemic, is mainly being
funneled into a handful of top clusters such as Boston, San Diego, and San Francisco, but
The need for next-
demand is solid in other secondary clusters too. Additionally, the need for next-generation
generation drug
drug manufacturing represents a new, growing real estate demand driver. These
manufacturing represents a
manufacturing sites are generally being located near the top cluster markets today, but over
new, growing real estate
time, we could see these requirements flowing to secondary clusters with a highly educated
demand driver.
workforce and a lower cost of living such as Research Triangle in North Carolina or suburban
Maryland. Overall, we believe this backdrop should continue to spur laboratory demand,
pushing vacancy rates lower, rents higher, and creating development opportunities with
attractive risk-adjusted returns.
Medical advancements in Next-generation manufacturing growing real estate demand driver

drug research have led to The need for next-generation drug manufacturing represents a new real estate demand driver,
exciting breakthroughs in and plays a critical role in the Quest for Immortality in terms of drug development. Medical
gene therapy, gene editing, advancements in drug research have led to exciting breakthroughs in gene therapy, gene
and biologics, but the editing, and biologics. However, the manufacturing of these complex drugs such as biologics
manufacturing of these (large molecule) is much more difficult than traditional small molecule drugs. For example, the
complex drugs is much development of biologic treatment options depends on cultures of living cells and viruses that
more difficult than require particular environments to grow and remain viable. This process is highly specialized
traditional small molecule and is generally overseen by PhD/MD individuals that were involved in the research and
drugs. development process. The end product is more fragile and needs to be transported through a
sophisticated supply chain from the production facility to the end user.
Life science companies generally locate production sites, particularly early in the development
stage, closer to the top cluster markets so key personnel can oversee the process. However,
as the product is commercialized some companies may elect to build large manufacturing sites
in markets with a lower cost of living and/or diversify production by outsourcing to a contract
manufacturing organization (CDMO). These sites still need to be located in markets with a
highly educated workforce that has this specific manufacturing expertise. A few of the
secondary cluster markets represent a great base that can support this need such as Research
Triangle in North Carolina or suburban Maryland.

Exhibit 4 - Biologics have comprised a large portion of approved treatments over the past
few years
70
60
50
NDA & BLA Approvals
40
30
20
10
YTD
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
New Drug Applications Biologics License Application
Source: U.S. Food and Drug Administration (FDA) and RBC Capital Markets Note: Reflects Center for Drug Evaluation and Research (CDER) data

Home Healthcare: The emerging value proposition

The home health industry has a multitude of powerful secular tailwinds. We view the near-
term issues of COVID-related staffing pressure as transitory, and believe they will improve.
Over the long term, these short-term issues are outweighed by powerful demographics,
consumer preference for care at home, the expansion of capabilities and offerings at home,
and the value proposition availed to both public and private sector payors, all of which are
We view the near-term driving an expanding total addressable market. We see both attractive organic growth as well
issues of COVID-related as consolidation opportunities in this highly fragmented industry. Long-term investors should
staffing pressure as have exposure to the home health sector. The following further explains why.
transitory, and believe over
the long term, these short- According to a MedPAC analysis of the CMS database, Home Health is a $32.4B market
term issues are outweighed involving the delivery of skilled nursing, physical therapy, occupational therapy, speech
by powerful demographics, therapy, aide services, and medical social work primarily provided to Medicare beneficiaries
consumer preference for in their homes, after a physician makes a referral from either a hospital or physician’s office.
care at home, the Fee-for-service (FFS) Medicare spent $17.8B on home health services for 3.3 million
expansion of capabilities beneficiaries using the service, and this is expected to increase to $35.1B by 2028. Medicare
and offerings at home, and Advantage (MA), the other large payor, covers approximately 40% of the total Medicare-
the value proposition eligible population, and accounted for 31.2% of home health episodes of care.
availed to both public and
There are other ancillary home-based services included in the broader market sizing, including
private sector payors.
Hospice, a $22.7B market that covers support services for beneficiaries who are terminally ill
with a life expectancy of less than six months. This service is primarily covered under FFS
Medicare, and is forecasted to grow to $45B by 2028. The final home-based service model is
Personal Care, a $15.1B market. Personal care is a home- and community-based service that
provides non-medical services, including assistance with activities of daily Living (ADLs)
primarily for the elderly with physical and/or intellectual disabilities. Medicaid or other state-
funded programs are the primary payors for these services as Medicare and MA generally do
not cover services.
We see multiple industry tailwinds for home-care–based services

The U.S. population continues to grow older and live longer, increasing the need for both
Home Health and Hospice. The number of Americans 65 years and older is expected to
increase at a 2.7% CAGR through 2030, with 10,000 Americans turning 65 every day for the
next 10 years.

Exhibit 5 - Demographic trends are compelling for the age cohort needing home health care
services
Source: U.S. Census Bureau, National Intercensal Estimates: 2016 Population Estimates, June 2017; 2017 National Population Projections, September 2018;
and “The Fiscal & Economic Challenge,” Peter G. Peterson Foundation
Home Health is significantly less expensive than most post-acute care setting. Home Health is
90% less expensive than SNFs and 97% less expensive than LTACHs. Hospice is 65% less
expensive than SNFs and 95% less expensive than acute-care hospitals where many elderly
people pass away.
Exhibit 6 - Home Health is one of the lowest cost/ highest value settings for post-acute care
Annual Medicare Average Medicare

Post-acute Care Spending Cost
Acute-Care Hospital $189.0 billion $3,250/treatment

Inpatient Rehab Facilities (IRFs) $8.1 billion $1,584/day
Long-Term Acute-Care Hospitals (LTACHs) $4.1 billion $1,507/day
Skilled Nursing Facilities (SNFs) $27.8 billion $485/day
Hospice $20.9 billion $172/day
Home Health $17.8 billion $49/day

Source: MedPAC analysis of the Common Medicare Enrollment file and the Medicare Beneficiary Database from CMS. (March 2021)
The home health and hospice industries are highly fragmented and ripe for industry
The home health and consolidation. There are more than 11,300 home health agencies and 4,800 hospice service
hospice industries are highly providers, with the largest public operators collectively accounting for only 20% of the industry.
fragmented and ripe for While the January 2020 transition of home health reimbursement to the new Patient Driven
industry consolidation. Groupings Model (PDGM), which included the elimination of Request for Advance Payment, was
to be a major catalyst for industry consolidation, federal relief programs under the CARES Act
provided near-term liquidity for operators. With CARES Act grants exhausted and recoupment of

advanced payments now underway, we expect to see financial strains that could likely renew
interest (and necessity) for consolidation of the smaller mom-and-pop operators.
Accountable Care/Value-based policy movement and payment models play well into the hands
of home-based care providers. To address increasing healthcare costs, both government and
commercial payors’ care models offer reimbursement that encourages and rewards the best
patient outcome for the lowest cost (high value). Specifically, episodic or “bundled” payment
models provide a single lump sum payment for all healthcare services utilized for the
treatment of a specific medical diagnosis (similar to a “prix fixe” menu versus ordering à la
carte). These models will encourage the use of the highest-value (lowest cost, with best
outcome) setting for the delivery of post-acute care once a Medicare patient is discharged
from the acute care hospital.
We believe home health is a natural beneficiary in this process.
Exhibit 7 - Home health is a natural beneficiary as commercial and government payors push for more care into high value post-
acute care
Source: RBC Capital Markets
Home health can be a viable alternative to other traditional post-acute settings in many cases.
In fact, a recent demonstration project by CMS highlighted Home Health’s high-value
alternative versus other settings for certain diagnosis. The chart below illustrates the lower
hospital readmissions rates for major joint replacement rehabilitation.

Exhibit 8 - In addition to lower cost, Home health also produces attractive quality outcomes
for the post-acute population
25%
20% 18.9% 18.7% 18.6% 18.2%

16.9% 17.0% 17.3% 17.2%
16.3% 16.2% 16.6%
17.1% 17.2% 17.0%

15% 16.3% 16.4% 16.7%
15.5% 15.6% 15.9% 15.9% 15.8%
10.0% 9.9% 9.6%

9.1% 8.8% 9.3% 9.0% 9.1%
10% 8.3% 8.5% 8.4%
5%
0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Home Health Agencies Inpatient Rehabilitati on Faciliti es Skilled Nursing Facilities

Source: AHHQI 2020 Home Health Chartbook, Avalere analysis of the Medicare Standard Analytic Files 2009-2019
Expanding care programs to Policy momentum from both public and private-sector payors are driving further expansion of
serve higher acuity, capabilities and offerings in the home setting, such as “Hospital at Home” and “SNF at-Home.”
chronically ill Medicare Expanding care programs to serve higher acuity, chronically ill Medicare cohorts could
cohorts could potentially potentially expand the total addressable market for home health by as much as $30B. No
expand the total doubt, the capabilities of the home health industry were further highlighted by the global
addressable market for pandemic. Hospital at home replaces inpatient-level services with short-term acute home
home health by as much as nursing as well as telehealth-driven physician rounding. Hospital at home is suitable for certain
$30B. chronic patients within specific clinical categories like COPD and CHF that would otherwise
present at the Emergency Department, typically being admitted to the hospital for 2–3 days,
at a significantly higher cost.
Potential legislation could provide further momentum to the policy movement

impacting the sector. The bipartisan Choose Home Act was introduced on July 29, 2021; if
signed into law, it would allow clinically appropriate Medicare beneficiaries the option of
receiving post-acute treatment at home rather than in a more costly skilled nursing center.
Choose Home has significant bipartisan support with co-sponsorship by four senators from
each party, as well as lead sponsorship from the Chair of the Senate Finance Health
Subcommittee and the Chair of the Senate Aging committee. Similar bipartisan support now
exists in the House. The legislation would guarantee Medicare savings of at least 20% for
beneficiaries opting for home versus SNF treatment. The legislation would cap payments at
80% of the cost of an SNF stay and limit the benefit to a 30-day episode of care, which together
would effectively lock in the 20% savings. Economics firm Dobson DaVanzo expects the bill to
drive $1.6–2.8B of Medicare savings over the next 10 years, although the official scoring from
CBO is pending. Assuming a successful scoring by CBO, we would expect the best chances of
an acceptable legislation through an “extender bill” later in the year.

Telecom: The 5G health factor

A more reliable and faster connected world will be a safer one. The COVID-19 pandemic
accelerated telemedicine initiatives globally in order to keep patients and doctors safe. Looking
further into the future, telemedicine will continue to evolve to provide more comprehensive and
effective healthcare coverage with the development of 5G and associated applications – treating
illnesses and saving lives.
The overall improvement in
the accessibility of the 5G connections will have an outsized impact on rural communities. These areas, which have been
healthcare system due to without a reliable broadband connection for years, will be able to experience a similar level of
5G applications provides an connectivity when compared to urban areas with the buildout of 5G infrastructure. Telemedicine
opportunity to bridge the will be particularly important as there is a shortage of doctors in rural regions. The increased
bandwidth and low latency of 5G will allow for higher resolution video and images, allowing
divide between rural, urban
doctors to treat patients more effectively from anywhere. Additionally, healthcare systems using
and suburban geographies
5G would be able to provide patients with specialists that they could not otherwise access due
worldwide.
to geography constraints. The improvement in the quality of virtual visits will allow for a more
holistic implementation of augmented and virtual reality, which will improve a doctor’s ability to
deliver innovative treatments with high accuracy.
Connected devices and AI technology will further improve healthcare for patients through better
health forecasts and real-time monitoring. AI will have more access to data through the increased
usage of wearables, which will require a 5G connection. The higher capacity and lower latency
associated with a 5G connection will allow for real-time monitoring of a patient’s well-being.
Data collected by the device would be analyzed by AI in order to make predictions on a patient’s
recovery, diagnose a condition or provide a notice for medical attention. The data tracked by the
device could be sent to doctors in real time to provide the best care to patients. In rural areas,
this would reduce the time spent getting to or in the doctor’s office, while simultaneously
improving preventative care, thus reducing the need to see a doctor. The overall improvement
in the accessibility of the healthcare system due to 5G applications provides an opportunity to
bridge the divide between rural, urban and suburban geographies worldwide.
Remote telesurgery is the future of medical device surgery

Remote surgery has made a rapid comeback as an aftermath of COVID-19. There are several
industry trends that have emerged in the aftermath of the COVID-19 pandemic, which had the
most severe impact in 1H’20. These trends include the rapid growth in home healthcare, remote
patient monitoring, remote and robotic-assisted surgery, and build-out of the smart city
infrastructure. The concept of remote surgery is not new as it was the original intent of the da
Vinci platform in the 1980s to provide battlefield surgery for the U.S. army. That said, the timing
is only now right given advancements in network speeds such as 4G LTE and 5G. As such, we
expect a rapid adoption in remote surgical capabilities in the decades ahead.
Remote surgery capabilities allow for case support today, but AI-driven decision making is the
future. Remote surgery capabilities include a range of solutions to make surgery more accessible.
This includes digital case support platforms that connect medical device teams to providers and
allows them to remotely share best practices and collaborate in real time during a live procedure.
It essentially allows doctors to ‘scrub in’ to any OR or Cath lab from anywhere in the world to
participate in real time. We believe the technology will evolve over time to integrate best
practices and optimal techniques across the user base and utilize artificial intelligence (AI) to aid
the surgeon in decision making during procedures.
Remote surgery capabilities are being adopted by a wide range of users. Remote surgery
capabilities in its current form is being embraced by medical device companies to drive adoption
of technologies and products; by doctors to facilitate training, real-time guidance, and/or second

opinion, and case sharing; and by hospitals to track surgeon performance, understand product
usage, and optimize rating to reduce variability across the hospital system.
Robotic telesurgery could
provide accessibility to Remote telesurgery is the future of medical device surgery. Robotic telesurgery goes beyond
world-class surgeons and/ simple case support as it utilizes wireless networking and robotic technology to allow surgeons
or capabilities in rural to operate on patients that may be located in distant geographies. The benefits are substantial
locations, battlefields, as it would: (1) provide accessibility to world-class surgeons and/ or capabilities in rural
spacecrafts, and other locations, battlefields, spacecrafts, and other locales where medical access is unavailable or
locales where medical severely limited; (2) eliminate the need for travel and save substantial time that may be utilized
access is unavailable or to treat new patients; and (3) allow for surgical collaboration at different medical centers in
severely limited. real time, including second opinions during live cases. We believe today’s technology with the
5G network and 3D display makes it easier to enable such surgeries more widely, but there are
some challenges such as latency (i.e., the time gap to transfer auditory, visual, and even tactile
feedback between locations).
Remote stroke intervention is the ‘holy grail’ for remote surgery. Remote stroke intervention
is the most notable clinical application for remote surgery. Stroke occurs when the blood
supply to a part of the brain is interrupted or reduced preventing brain tissue from getting
oxygen and nutrients. Stroke patients lose two million brain cells per minute, and the damage
can be severe after just 10 minutes. The longer the patient waits to be treated, the greater the
chance of brain damage. Stroke is a severely undertreated condition and in many instances
patients lose valuable time in getting to a stroke center (even if available, it is inaccessible to
most patients around the world).
Exhibit 9 - Remote surgery in China
Source: Design World.
Continue reading more about virtual health in Hybrid Living – Virtual Health is the Future

Autos: An accident-free world

Automated vehicles can reduce fatalities and increase productivity, but may also
widen demographic divides
According to the World Health Organization, each year ~1.35 million people are killed on
roadways around the world. That’s 3,700 people/day. Per WHO, crash injuries are estimated
According to the World to be the eighth leading cause of death globally for all age groups and the leading cause of
Health Organization, crash death for people aged 5–29 years. Further, the U.S. CDC highlighted that fatal and nonfatal
injuries are estimated to be crash injuries will cost the world economy an estimated $1.8T dollars (in 2010 USD) from 2015–
the eighth leading cause of 2030 – equivalent to an annual tax of 0.12% on global GDP.
death globally for all age
groups and the leading In the U.S., there were 38.7k traffic deaths in 2020. When we look at fatalities scaled for 100
cause of death for people million vehicle miles travelled (VMT) or per 100k in population, we can see that the rate of
aged 5–29 years. improvement slowed significantly in the 1990s, flattened out in the 2010s and actually
increased in 2020 (in a year when VMT was down significantly, -12%, during COVID-19). This is
despite more and more driver assistance technology in vehicles.
Exhibit 10 - U.S. traffic fatalities per 100 million VMT and per 100k population
Source: NHTSA, FHWA, U.S. Census
Pedestrian deaths (which are included in the U.S. fatalities above) are on the rise, likely due to
larger vehicles (more pickups and SUV/CUVs) but also more smartphone distraction.

Exhibit 11 - U.S. pedestrian traffic fatalities

7,000 18%
6,000 17%
As a % of Total Traffic Fatalities

Pedestrain Traffic Fatalities
16%
5,000
15%
4,000
14%
3,000
13%
2,000
12%
1,000 11%
0 10%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Pedestrian Fatalities Pedestrian Fatalities as % of Total Traffic Fatalities
Source: NHTSA FARS
According to NHTSA, 94% of

serious crashes are due to So a step change in technology may be needed for further improvement in vehicle safety. Enter
human error - automated the promise of autonomous vehicles. According to NHTSA, 94% of serious crashes are due to
vehicles have the potential human error. Automated vehicles have the potential to be better than human drivers. We
to be better than human believe that over the coming 5–10 years, with advancements in artificial intelligence and
drivers and could reduce the robotics we will begin to see Level 4 automated vehicles (defined as a vehicles that can operate
risk of serious crashes over within a defined operational design domain) hit the road. This will likely be in the form of
the long term. automated ride-hailing services or “robo-taxis,” automated package delivery and highway
freight. We do not believe Level 5 (all and any conditions) will happen anytime soon.
Exhibit 12 - SAE levels of driving automation
Source: SAE International

Dan Ammann, CEO of General Motors subsidiary Cruise, recently noted that their vehicles,
which have been testing in downtown San Francisco, recently approached human driver
capability. However, it is important to note that from 2016 until today, the system has
improved exponentially – 1,000x. That improvement may have gotten Cruise to a minimal
viable product, but the exponential improvement suggests that soon, the system will be
significantly safer than a human driver. Cruise is one of only three companies to receive a
California DMV driverless deployment permit for paid rides along with Waymo and Nuro (does
package delivery). Only one hurdle remains towards regulatory launch (CPUC driverless
deployment, paid).
Exhibit 13 - Regulatory progress towards SF driverless ride hail launch
Permits
Received Date Permit
Issued
P Jun 2015 DMV Drivered Test >50
P Feb 2020 CPUC Drivered Test (unpaid) 9
P Oct 2020 DMV Driverless Test (unpaid) 8
P Jun 2021 CPUC Driverless Test (unpaid) 1
P Sep 2021 DMV Driverless Deployment (paid) 3*
− To Come CPUC Driverless Deployment (paid) -
Source: General Motors, Cruise
In our view, the robo-taxis will likely be in urban areas. This may also lower pedestrian deaths,
NHTSA estimates that
as there tends to be more pedestrians on city streets than highways. However, progress is also
motor vehicle crashes in
being made on highways with autonomous freight trucks. TuSimple expects to pilot
2010 cost $242B in
economic activity and autonomous (driver-out) freight runs with a customer later this year.
$594B due to loss of life or Aside from the morality of saving lives, there are economic and societal benefits. NHTSA
decreased quality of life estimates that motor vehicle crashes in 2010 cost $242B in economic activity (including $57.6B
from injuries. In 2014,
in lost workplace productivity) and $594B due to loss of life or decreased quality of life from
Americans spent 6.9 billion injuries. Fewer crashes could increase economic benefits. Further, more automated vehicles
hours in traffic delays. on the road could reduce traffic congestion increasing productivity. In 2014, Americans spent
6.9 billion hours in traffic delays. Automated vehicles can also provide more mobility options
to those who cannot operate a vehicle, because of either disability or age.
Low- and middle-income
We do note that automated vehicles are likely to evolve differently in different geographies.
countries have significantly
Again, we believe robo-taxis will start in more urban areas. This could do little to affect more
higher crash death rates –
rural traffic fatalities. Larger cities also tend to have higher population incomes. Globally, low-
estimated to be three times
and middle-income countries have significantly higher crash death rates – estimated to be
higher than high-income
three times higher vs. high-income countries according to the WHO. Initial deployment of
countries.
more automated vehicles is likely to start in high-income countries, doing little to affect those
countries where safety is a larger issue and likely increasing the divide.
The vehicle as a health sensor

Vehicles today already generate a significant amount of data including geolocation, vehicle
health/performance, and driver behavior, among others. But the architecture of a vehicle is
changing to allow for more sensors, and computer- and software-enabled features and
services. As the architecture of the vehicle continues to adapt, the data sources and data sets
are likely to get even larger. Vehicles will have more compute power, more bandwidth, and
more over-the-air capabilities (for sharing data back and forth).

As driver assistance features continue to proliferate in vehicles, so too will driver-monitoring

systems (DMS) to make sure the driver is attentive and able to take over control of the vehicle
if necessary. But it could also be possible to build off hardware already in place for DMS to look
to the driver’s holistic state of well-being. Toyota has shown this in their LQ concept car, which
can identify not only inattentiveness or drowsiness but also emotional states like anxiety or
boredom. The system then may blast music or AC to create a safer driving state.
Another area could be increased use of biometrics. For instance, could we see a heart monitor
in the driver’s seat? While they have since scrapped the project, over the last decade Ford was
working on an electrocardiography (ECG) reader that is integrated into the seat.
Exhibit 14 - U.S. patent application 20150054495
Source: U.S. Patent & Trademark Office
In the future world, such a feature, or features that track other vitals (think glucose monitoring
Companies are working on for diabetics) may be reintroduced. Companies are working on the ability to track resting heart
the ability to track resting rates, respiratory rates and other vitals in the car. For instance, we’ve seen different types of
heart rates, respiratory sensors that use AI and can track in-cabin body temperature, respiration and heart rate. At
rates and other vitals in the CES, Veoneer’s test vehicle was able to detect certain vitals for passengers. Eyeris showed an
car. AI software portfolio architecture that can accurately detect the number of occupants in the
car, their activities, cognitive state (e.g., driver distraction), heartbeat, body temperature,
estimated upper-body size (e.g., for dynamic airbag deployment), etc. Gentex is working on
developing systems that can monitor passenger activity and well-being along with vehicle
hygiene and air quality.
We can imagine that in a post-COVID-19 world, there may be a desire to be able to monitor
driver/passenger temperatures with thermal imaging (especially in a shared transportation
modality). However, extending this thought and imagining other capabilities from the sensor
suite, we wonder if the vehicle of the future could become an important tool to enable
telemedicine. Instead of visiting the doctor in person, can the vehicle – already equipped with
cameras and connectivity – also have sensors to detect vital signs to send to a doctor for
consultation?

Multi-Industry: Indoor air quality and healthy buildings

The COVID-19 pandemic is a wakeup call to safeguard our indoor environments against the
spread of future contagions, as a means of improving and prolonging health and quality of life.
The public awareness on indoor air quality and its associated potential health risks are
expected to fundamentally change the way building air filtration and disinfection systems
operate. Gone are the days of building owners/tenants accepting last-generation stale office
The COVID-19 experience building air circulation and the associated “petri dish” of worries. The COVID-19 experience
sparked a megatrend in has sparked an entire megatrend in Indoor Air Quality/Healthy Buildings. We now expect
indoor air quality, which we building occupants, whether in offices, schools, restaurants, or their own homes, to be hyper-
expect to fundamentally focused on knowing the air quality of their environments in real time. The need to monitor air
change the way air quality will likely manifest in the deployment of networked sensors throughout a building,
filtration and disinfection measuring against regulatory/set standards and updated on accessible websites and
systems operate in the eventually smart phones. Further, there is still much uncertainty regarding the office
future to improve health. workplace post-COVID. Many employees may opt to permanently work from home. That said,
lower density offices may actually lead to higher commercial building demand. Further, more
office capacity will likely be needed in the suburbs. What is clear is that HVAC systems
upgrades will be needed to handle higher air exchange capacity, partly driven by new
standards for indoor air quality. We also anticipate higher demand for touchless technologies,
especially for credential verification and access control. Finally, the widespread adoption of
working from home should spur more demand for resi HVAC, likely making this sub-sector a
beneficiary of this “work from home/stay at home” trend.
IAQ still in the “first inning”

Indoor Air Quality remains in its nascent stages. Carrier has sized the incremental global
market at roughly $10B, which could add 1–2pp to annual sales growth over the next decade.
Similarly, peer Trane Technologies has noted that the opportunity should provide an
incremental 1–2pp revenue tailwind over the next decade. Finally, Johnson Controls has cited
a $10–$15B market growing double-digits.
Demise of the office and other commercial buildings?

Offices have been a key debate item with the potential for working from home to take on a
Prior to the pandemic, only larger role moving forward. An April 2020 University of Chicago paper predicted that 37% of
a single-digit percent of jobs in the U.S. could be performed entirely at home, providing some calibration on how much
employees in the U.S. less office space might be needed. Prior to the pandemic, only a single-digit percent of
regularly worked from employees in the U.S. regularly worked from home, with about 4% working from home at least
home, with about 4% half of the time, according to Global Workplace Analytics. The same firm predicts that within
working from home at least several years, 30% of people could work from home multiple days per week.
half of the time; this
number could increase to HVAC systems likely need to be run harder
30% of people working from It is still unclear what the net effect will be on long-term commercial building demand given
home multiple days per the cross-currents of a higher number of employees opting to work from home, lower density
week. requirements for buildings (at least in the near term), and more office building demand in the
suburbs. While this remains a worry, we note how there are several natural offsets: (1) We
expect higher demand for powerful air handing and filtration systems. Specifically, commercial
building HVAC systems will need to power more air circulation to produce more air changes
per hour. Prior to COVID-19, most commercial buildings had air changes per hour (ACH) of 6-
12, with many as low as three. There also could be a step up in recommended air filters
including upgrading to High-Efficiency Particulate Air (HEPA) filters that have Minimum
Efficiency Reporting Values (MERV) of 13 or higher. (2) We also see the need to revamp
building entry and credential verification systems to become entirely touchless (e.g., using
smart phone apps and retina scanners). (3) For other building control upgrades, look for
changes to elevator protocols and the management of lobby traffic.
Rethinking building security systems

Considering the hygienic Considering the hygienic issues with some legacy access control systems, such as fingerprint
issues with some legacy scanners, many buildings will be forced to adapt with touchless systems. These could include
access control systems (e.g., touchless biometrics (ex. retina), near-field communication devices such as a keycard or key
fingerprint scanners), we fob, or Bluetooth with mobile phones, or combinations of the systems. Even devices like
believe many buildings will coffeemakers, water dispensers, and copiers could all be upgraded to be touchless and
be forced to adapt with controlled by smartphones. Carrier has noted that most buildings have 8–10 touchpoints as
touchless systems. you move from your car to your desk, and that it believes its touchless access systems can
eliminate roughly 80% of these contacts.
Evolution to connected buildings and SaaS

The move from legacy break/fix to more digital-linked services and predictive analytics should
dramatically increase lifetime value economics of projects. For example, we were impressed
with Johnson Controls’ example at its 2021 analyst meeting of the much better project
economics once its digital offering OpenBlue and services are included. In the old world, $1 in
initial equipment value installed correlated with 5x that value in service and retrofit over time.
Once digital solutions were layered in, that increased to 7x, and with the next layer of
outcome-based solutions using OpenBlue, it can be 10x. We expect that HVAC and building
controls competitors can glean similar outcomes with new digital and connected offerings.
Exhibit 15 - Johnson Controls’ lifetime value economics including digital offerings
Source: Johnson Controls Company reports
Residential HVAC supported by “work from home”

Dovetailing with the trend of potentially less need for office space is an increase in working
from home. As a result, we expect to see investments in upgrading resi HVAC systems. Further,
there should be a spurt in services as a result of the systems being run for longer periods of
time, including potentially all day when certain employees were previously located at offices.
That said, we are cognizant that HVAC systems can be costly, though we would argue that in
We expect HVAC companies certain warmer regions it is not really a discretionary purchase.
to play a key role in
achieving carbon neutrality, Helping customers meet ambitious carbon neutrality targets
as HVAC systems account With seemingly every public company announcing goals for carbon neutrality in their
for roughly 40% of a operations (often 2030, 2040, 2050, etc.), in our view the HVAC players are all in ideal
building’s energy usage. positions. We expect them to help these customers reach their targets by optimizing their
HVAC systems, which account for roughly 40% of a building’s energy usage. Note that it is our
understanding that the targets are often set without a clear roadmap to getting there, and
improving one’s HVAC system should be a great starting point.
Healthcare services: Putting employee health first

Employee health is a key corporate priority in the post-COVID world. COVID-19–related
lockdowns and other restrictions on in-person physical activities have significantly disrupted
businesses across the globe, and have led to significant increases in remote work
environments. This shift appears permanent, with many organizations appearing to support
While remote working remote work or hybrid work environments beyond restrictions related to COVID-19. While
delivers improved remote working delivers improved productivity, it may also inadvertently intensify mental
productivity, it may also health and other health challenges for some employees. Moreover, the ability for
inadvertently intensify organizations to deliver solutions for employee health is more challenging in virtual and hybrid
mental health and other environments. For example, many organizations provide on-site fitness facilities, nutritious
health challenges for some meals, and dry-cleaning services to their employees, which are not available in virtual
employees. environments. Additionally, in-office consulting and support for employees is more difficult in
a virtual environment. In light of the significant impact that employee health has on employee
This is leading to a re- productivity, absenteeism, employee turnover, and direct health costs, organizations are
evaluation of existing increasingly prioritizing strategies and technologies to maximize the health of their employees
corporate well-being in both virtual and in-person environments. This is leading to a reevaluation of existing
initiatives and an corporate well-being initiatives and an acceleration in the deployment of new corporate well-
acceleration in the being technologies.
deployment of new
corporate well-being Corporate well-being programs are diverse. Corporate well-being initiatives have expanded
technologies. beyond just simply offering fitness club memberships to employees or subsidized healthy
lunches. Well-designed programs include categories such as health risk assessment, fitness,
smoking cessation, health screening, nutrition & weight management, stress management,
and others. Based on our research, we believe health-risk assessment and nutrition & weight
management are the two largest segments, each representing 21% of the global spending on
corporate well-being. The next largest segments are smoking cessation (18%), fitness (15.5%),
stress management (13.5%), and health screening (8%).
Exhibit 16 - Corporate well-being solutions address six major categories

Others
Health Screening 3%
8% Health Risk Assessment
21%
Stress Mgmt
14%
Nutrition & Weight

Fitness Mgmt
15% 21%
Smoking Cessation
18%
Source: RBC Capital Markets estimates, Grand View Research

The global corporate well-being market is expanding at 6–7% CAGR. While the size of the
corporate well-being market varies, numerous market research firms estimate that the market
is likely to grow between 6% and 7% per annum over the next several years. According to GWI,
the global corporate well-being market will expand to $66B by 2022, up 7% CAGR from $47.5B
in 2018. GWI attributes the growth to rising global prosperity, population aging, increasing
While estimates vary, prevalence of chronic disease, and a growing understanding and adoption of well-being as a
numerous market research holistic concept. Other market research companies point to similar or larger sizes for the
firms estimate that the corporate well-being market. For example, market research firm Allied Market Research
global corporate well-being expects the workplace/corporate wellness market to reach $66.2B by 2027, which represents
market will expand at a 6– a 6% CAGR from $49.8B in 2020. In comparison, Mordor Intelligence forecasts the corporate
7% CAGR over the next wellness market rises to $83.2B by 2026 from $57.0B in 2020. According to Grand View
several years Research, the corporate well-being market will grow to $93.4B (7% CAGR) by 2028. Lastly, a
corporate wellness market report by Research and Markets published in February 2020
expects the market to reach $97.4B by 2027, growing at 7% per annum.
Exhibit 17 - Corporate well-being market is forecast to grow between 6% and 7% per annum
Source: RBC Capital Markets, Company reports, Allied Market Research, Mordor Intelligence, Research and Markets, Grand View Research
Corporate well-being becomes commonplace. According to PwC’s CEO Panel Survey in

June/July 2020 regarding business priorities following the COVID-19 pandemic, the 699
respondents in the survey ranked employee-related initiatives related to remote work and
employee wellness programs as the third- and fourth-highest priorities, respectively, behind
only digitalizing core business operations and adding digital products and services. Specifically,
15% of respondents ranked increasing remote work as their first priority, with 11% ranking
employee-oriented wellness programs as their first priority. Notably, these employee-related
initiatives ranked above automation, lowering carbon footprints, reducing real estate
footprints, and M&A.
High ROI from corporate well-being investments is likely to sustain demand. Along with
heightened awareness of corporate well-being, there is now data to quantify the financial
return to corporations on investments in employee well-being. According to a publically
available study performed by Forrester, corporations yielded an ROI of 162% over three years

from solutions provided by corporate well-being company Virgin Pulse. Forrester conducted
interviews with four of Virgin Pulse’s customers ranging in size from 7,500 to 160,000
employees that have been using the platform for 5 to 10+ years. The report considers
quantifiable benefits such as reduced employee attrition, reduced healthcare costs, broad-
based productivity increases, decreased administration and communication costs, and
reduced costs of fatigue-related mistakes. Moreover, the study also highlights unquantifiable
benefits such as more interest in high-deductible health plans, increased participation in
preventative care, and improved employee experiences.
Exhibit 18 - Forrester estimates ROI of 162% over 3 years for Virgin Pulse’s well-being
solution
Cash Flow Analysis (risk-adjusted estimates)

Initial Year 1 Year 2 Year 3 Total Present Value
Total costs ($718,200) ($4,462,500) ($4,462,500) ($4,462,500) ($14,105,700) ($11,815,777)
Total benefits $0 $10,640,981 $12,517,618 $14,553,844 $37,712,443 $30,953,277
Net benefits ($&18,200) $6,178,481 $8,055,118 $10,091,344 $23,606,743 $19,137,500
ROI 162%
Payback period <3
(months)
Source: Forrester

Consumer: The rising trend of self-care

Rising healthcare costs and an aging population are driving a change in consumers’ habits
towards self-care, a trend that was accelerated during the COVID-19 pandemic. The WHO
defines self-care as “the ability of individuals, families and communities to promote health,
prevent disease, maintain health, and to cope with illness and disability with or without the
We believe consumers will support of a healthcare provider,” and the International Self-Care Foundation developed the
increasingly want to seven pillars of self-care: (1) knowledge and health literacy, (2) mental wellbeing, (3) physical
manage their own health activity, (4) healthy eating, (5) risk avoidance, (6) good hygiene, (7) rational use of products
and wellbeing, and we and services. Self-care has manifested in several different ways across the consumer
expect consumer companies landscape: the consumer trend towards fitness and a healthier lifestyle, consumers’ demand
to increasingly offer for telehealth options, consumers’ desire for healthier food and beverage options, and
products and services in this consumers’ needs for self-medications. We believe consumers will increasingly want to
category. manage their own health and wellbeing, and we expect consumer companies to increasingly
offer products and services in this category.
One of the key drivers that led to the consumer trend towards self-care has been the rise of
healthcare costs, particularly in the United States. The Consumer Price Index (CPI) for Medical
One of the key drivers that Care increased by ~31% over the last 10 years, compared to the total U.S. CPI increase of ~21%,
led to the consumer trend with U.S. national health spending projected to grow at an average annual rate of ~5.4%
towards self-care has been through 2028, reaching $6.2T by 2028. This rapid increase in healthcare cost has become a
the rise of healthcare costs, concern for many U.S. consumers, is causing increasing financial pressure, with ~66.5% of all
particularly in the United U.S. bankruptcies tied to medical issues (high healthcare costs and/or time out of work). This
States – ~66.5% of all U.S. has led many U.S. consumers to take their health decisions and healthcare in their own hands,
bankruptcies are tied to a trend even more pronounced among younger consumers with 47% of millennials and 41%
medical issues. of Gen X consumers making every effort to avoid visiting the doctor, according to a 2018 survey
by IRI. Overall, nearly nine out of ten Americans actively practice self-care regularly, and one-
third of consumers have increased their self-care behavior during the past year.
The COVID-19 pandemic has even accelerated the self-care trend. Restrictions on access to
healthcare facilities for non–life-threatening cases increased the demand for telehealth, and
increased consumers’ attention to their health and well-being, given fears of getting sick
during the pandemic. According to a January 2021 IRI survey, ~27% of surveyed U.S. consumers
will focus more on health in the future as a result of the COVID-19 pandemic, and 17% will buy
more products that support immunity as a result of the pandemic. We believe some of the
pandemic-driven behavioral changes will be long lasting. According to the same IRI survey,
49% of U.S. consumers surveyed say they will wash hands more frequently even post the
pandemic, 35% say they will use hand sanitizers more often, 33% say they will wear mask in
public during flu season, and 27% say they will focus more on their health. The increased use
of vitamins and supplements during the pandemic was a clear example of the increased focus
on healthcare. According to IRI, the average U.S. household penetration of vitamins and
supplements increased by 5% during the pandemic, from 53% (March to December 2019) to
58% (March to December 2020). Furthermore, the number of vitamin and supplement
consumers in the 18–34 age demographic also increased year-over-year by 18% in 2020,
reflecting the broadened demographic reach of nutrition products. In addition to increasing
immunity, other highly sought after benefits included energy, weight loss, gut health, heart
health, bone health, sleep, brain function, and stress reduction.
The pre-pandemic trend towards self-care coupled with the behavioral changes during the
pandemic generated a large market opportunity for consumer companies, with IRI sizing the
self-care market as a $450B opportunity. The self-care market opportunity is very broad, with
products and services ranging from OTC medicines, vitamins and supplements, and natural
and organic home remedies to better-for-you food and beverages, health and wearable
devices, and fitness-related products. Consumers are clearly taking a 360-degree approach
towards their health and wellness so we would expect the further emergence of self-care will
lead to a blurring of the lines between traditional consumer staples categories, consumer
discretionary, and tech-enabled categories. Ultimately, we would expect consumer companies
to increasingly offer products and services that will allow consumers to manage their health
and wellness with less reliance on the healthcare system.
Advances in science and technology have allowed the emergence of a brand-new class of
devices that allow consumers to monitor their health without the need of a physician or
healthcare professional. Take for example the finger pulse oximeter, which measures blood
Advances in science and oxygen saturation. The technology for this was developed in the 1930s, originally measuring a
technology have allowed the ear, with the first finger pulse oximeter not commercialized until the 1970s in Japan, and
the emergence of a brand- the 1980s in the U.S. Pulse oximeters have been staples in hospitals for decades. Developed
new class of devices that to meet the demand for measuring oxygen during surgery once the use of ventilators during
allow consumers to monitor anesthesia became ever more common, they revolutionized the work of anesthesiologists. In
their health without the certain wearables, features such as pulse ox monitoring are already available, such as in the
need of a physician or Apple and Samsung smart watches. While there are notes on caution about the accuracy and
healthcare professional. reliability of these tracking and data (which we expect to improve over time), we expect similar
evolutions to take certain products and categories away from being exclusive to the medical
We expect consumer realm and into the area of general consumer health, wellness, and personal care. Continuous
demand for self-care will glucose monitors are another great case study of the consumerism of healthcare. Today,
result in the development of consumers can get a real-time read on their blood glucose levels and manage their diets and
several new self-care lifestyles accordingly (obviously useful for diabetics but also people looking to manage their
consumer products over the weight). Other devices and diagnostics are currently being developed in labs around the world
next decade. that we believe will provide even more “data” for consumers to use to manage their health
and wellness.
We expect that the combination of consumer demand for self-care, their desire to know more
about their health and their bodies and technological advances will result in the development
of several new self-care consumer products over the next decade. For example, oral care is
seeing several developments with the introduction of smart toothbrushes to help consumers
brush more effectively, and future concepts, such as a sensor developed at Tufts that could be
attached to a tooth, tracking items eaten by a user and collecting data from the mouth.
Another example is Viome Bioinformatics, which uses AI to unveil which foods and
supplements are ideal for you, your cellular health and gut microbiome. We’d expect many
more of these products and services to enter the market in the next decade.

Plant-based foods: The great win-win

“What I was experiencing was more than a clever meat substitute.
It was a taste of the future of food.”
Bill Gates, 2013 after eating the Beyond Burger
Healthier diets is a key element in consumers’ quest for immortality. Danone found 47% of
younger generations are eating healthier and 30% are willing to actually pay a premium for
that. The plant-based segment correlates closely with this trend – meat and dairy look-a-like
products made from plant-based proteins such as soy, pea, fermented mycoproteins and oat
are often lower calorie with more fibre and less fat. They also don’t include lactose (found in
dairy) to which a significant proportion of the population is intolerant, nor the chemical
compounds in meat that have been linked to cancer. It’s therefore unsurprising that
Plant-based food and consumers are increasingly becoming ‘flexitarians’ – a 2019 survey by Euromonitor found 46%
beverages meet rising of respondents globally were restricting their consumption of animal products. The plant-
consumer demand for more based space is growing fast around the world – in Western Europe it has had a 5-year CAGR of
environmentally friendly over 10%.
products – one popular
choice, the Beyond Meat Plant-based food and beverages also meet rising consumer demand for more environmentally
burger, takes 99% less friendly products as well. For example, the Beyond Meat burger takes 99% less water, 93% less
water, 93% less land, 90% land, 90% fewer greenhouse gas emissions and 46% less energy to produce than a typical
fewer greenhouse gas animal burger. Dairy too – one study found the creation of soya milk only had a fraction of the
emissions and 46% less environmental impact of dairy milk. With environmental concerns likely to remain prominent,
energy to produce than a and given Unilever found that diet is one of the areas 18- to 24-year-olds are most willing to
typical animal burger. change for the benefit of the planet, we expect the plant-based space to continue to grow in
size and penetration of the meat and dairy categories. Our blue sky scenario for the plant-
based meat category forecasts it reaching 30% penetration by 2100 (global, ex-APAC). It
currently sits at about 3%. You can read more about our view of the category in our RBC
Imagine-branded report Uprooting tradition: What plant-based alternatives mean for the
future of protein.
Exhibit 19 - Our blue sky scenario for traditional meat alternative category
600
500
Category retail value (USDbn)
400
300
200
100
0
2037
2088
2025
2028
2031
2034
2040
2043
2046
2049
2052
2055
2058
2061
2064
2067
2070
2073
2076
2079
2082
2085
2091
2094
2097
2100
Processed meat Plant-based meat

Sources: Euromonitor, RBC Capital Markets estimates

The quoted food sector is making a significant push towards plant-based food and beverages
in response to consumers’ wish for more healthy alternatives amid escalating environmental
concerns. The phrase ‘in response to consumers’ is important. Branded consumer businesses
typically spend five to seven times as much on marketing as they do on research and
development. They can be relied upon to provide the funding and encourage this trend
(Nestlé, for example, is spending 10% of its R&D budget on plant-based alternatives) but
readers should remember that they are marketing companies, not scientific ones. They will
not get too far ahead of consumers’ preferences and they will want to see a clear path to
profitability. Thought leadership will be left to the start-ups of the food industry.
Indeed, many start-ups are moving beyond plant-based and onto other protein alternatives
already. Animal product alternatives (not ticking the animal welfare or health box, but these
products offer serious health and environmental benefits) are being developed using insects
and grown in labs – we call this ‘cultivated’ or ‘cell-based’ meat and dairy. The latter is grown
using animal cells therefore bypassing the environmental and animal welfare costs of farming.
It is yet to reach scale or commercialization, but major milestones have been reached – earlier
We anticipate the future this year, Singapore became the first country to give regulatory approval to a cell-based
food aisle will include an product. There’s also two publicly listed companies involved in the space – Meat Tech 3D and
array of products – plant- Biomilk, both listed in Tel Aviv. We expect the quoted food and beverage sector to get involved
based, animal (and insect)- when consumer acceptance of a lab-grown product is understood more fully and when scale
based and cell-based – to improves cost structures.
meet consumers’
We anticipate the future food aisle will include an array of products – plant-based, animal (and
unstoppable appetite for
insect)-based and cell-based – to meet consumers’ unstoppable appetite for healthier and
healthier and more
more sustainable products.
sustainable products.
Exhibit 20 - How cell-based meat is made in a lab
Source: Regulation of Cell-Cultured Meat, Congressional Research Service, Federation of American Scientists. (25 Oct 2018)

Buy Now, Pay Later (BNPL): The healthcare edition

While the quest for immortality may be therapeutically making progress, consumer’s ability to
finance this noble quest is far more cryptic and adding to the ever-widening wealth/health
gap. Thus the need for a more consumer friendly and flexible way to pay. Given the recent
Given the recent success in success in the Buy Now, Pay Later movement, we believe similarly structured products will
the Buy Now, Pay Later spill over into consumer healthcare and more specifically post insurance payments. As in retail,
movement, we believe transparency in the cost of goods and services and the corresponding payment tend to
similarly structured correlate with higher acceptance/conversion rates. We foresee a world whereby installment
products will spill over into lending, based on a credit profile, capacity to pay, and insurance plan, will be used to offer
consumer healthcare (and, individuals specific payment plans in advance of procedures, much in the same way a
more specifically, post consumer is offered a 0% APR to buy a Peloton. This type of innovation could be coupled with
insurance payments). a consumer’s digital heath records in a health tracking app (think Apple Health), as a means to
determine the insurance algorithm. This would effectively work as a rewards system – the
more you work out and maintain a healthy diet/lifestyle, the higher your rewards, lower your
insurance, and lower the APR on your financed medical procedure, creating a flywheel effect.
It is estimated that the total global addressable market for post insurance-related healthcare
payments in is ~$500B, according to Flywire, with only a small segment being serviced today.
In addition, in a recent survey conducted by Kaufman, Hall & Associates on the State of
Healthcare Performance, nearly half of all respondents (hospitals & health systems) indicated
that bad debt and uncompensated care had increased, suggesting a need for more flexible and
tailored payment programs, such as a BNPL solution.
Exhibit 21 - Impacts on the revenue cycle (% respondents seeing an increase in these categories)
Increase in bad debt/Uncompensated care 47%
Higher % of self-pay or uninsured patients 44%
Higher percentage of Medicaid patients 41%
Lower % of commercially insured patients 38%
Increased rate of denials 23%
Source: Kaufman, Hall & Associates, RBC Capital Markets

Seniors Housing: Adapting to accommodate shifting needs

Advances in medicine, healthcare delivery and access, and healthier lifestyles have extended
the lifespans of seniors across the world. Based on data from the OECD, the average life
expectancy of 65-year-old American women and men has risen by 21 years and 18 years,
respectively, up from 16 and 13 years, respectively, in 1960. As new medical and scientific
breakthroughs emerge over the next decade, we believe the form of seniors housing and
services offered will further evolve to meet the shifting needs of an older resident population.
New revenue streams to emerge as demand for additional services grows

We believe longer lifespans We believe longer lifespans among seniors will accelerate demand for more à-la-carte services,
among seniors will expanding the opportunity set for revenue generation among operators. As observed over the
accelerate demand for last decade-plus, seniors entering housing communities at older ages often require more
more à-la-carte services, services, particularly assistance with daily living. While services today range from dressing and
expanding the opportunity bathing, to exercise and assistance with medications (among others), we expect the suite of
set for revenue generation services offered will broaden further, including more physical therapy and wellness programs.
among operators. Indeed, the pandemic has reinforced the importance of access to in-house services for seniors,
particularly amid access restrictions for outside visitors. As well, we believe seniors with the
financial ability will be willing to pay a premium for programs and services that allow them to
age in-place and cater to their evolving physical, emotional, and intellectual needs.
Operators will increasingly leverage technology to improve resident quality of life

We expect advances in technology will continue to improve access to and the quality of care.
We believe telemedicine will play an expanding role in the decade ahead, reducing the need
for seniors to travel for routine medical appointments, particularly for more frail seniors. Rising
We expect seniors housing availability and adoption of wearable technology, along with new in-suite smart devices (e.g.,
owners and operators to in kitchens, washrooms, bedrooms), should also improve health monitoring and the delivery
increasingly invest in of timely care. Beyond physical health needs, we expect seniors housing operators will also
telemedicine, as well as leverage technology to offer more online and virtual learning educational programs. Advances
health monitoring and in robotics and artificial intelligence, coupled with a continued shortfall in qualified labor, may
educational technology. lead to an increased use of robots for therapeutic purposes and social interaction, particularly
for elderly residents with dementia or during periods of required self-isolation.
We believe scale and the financial capacity to invest in these technology initiatives will be key
differentiators among seniors housing owners and operators, particularly with our expectation
for labor shortages to persist. The use of data analytics to better understand and predict the
needs of aging residents will also prove critical as competition from new supply accelerates.
Applying lessons learned today to inform the design of tomorrow’s seniors housing
Lessons learned over the course of the COVID-19 pandemic have prompted seniors housing
owners and operators to re-evaluate the form and layout of congregate living. Over the next
decade, we believe properties may increasingly incorporate smaller resident clusters that offer
essential services for daily living and varying levels of care, but also allow residents to shelter
in-place in the event of viral outbreaks. More comprehensive amenities can remain available
for use in centralized buildings, in the absence of social restrictions. These more decentralized
structures may result in higher operating costs, but we believe select seniors are prepared to
pay for the added safety benefits. Demand for larger suites and access to more outdoor space
may also rise, as seniors increasingly consider the potential for extended periods of isolation.
We expect the prevalence of mixed-use, inter-generational properties that incorporate seniors

housing will also rise over the next 10 years. Specifically, seniors with more active lifestyles are
increasingly seeking the benefits of communities that offer access to a variety of retail, cultural
and entertainment experiences, a varied mix of age groups, and other healthcare providers.
Energy: Longer life = massive implications for emerging markets oil demand
This excerpt was written by Commodity Strategist Michael Tran and Brian Leisen (Associate)
from RBC Capital Markets, LLC’s Global Commodity Strategy team.
For Required Commodity The past decade saw the overwhelming majority of oil demand growth stem from the
Strategy and MENA Emerging Markets. To be more accurate, 60–70% of annualized global oil demand growth was
Research Conflicts concentrated in Emerging Asia. Growth in Organisation for Economic Co-Operation and
Disclosures, please see Development (OECD) countries (a group of 38 countries committed to economic progress and
page 261. free trade) was largely catatonic outside of the United States. Peak OECD oil demand was
achieved over a decade ago, topping out prior to the Great Financial Crisis, leaving the
Emerging Market countries to dictate the degree and direction of oil demand.
The conversation around peak oil demand has been focused largely on developed OECD
countries, where oil demand growth has sputtered out, with the oil intensity per capita peaking
pre-financial crisis and trending lower since. Over that same time period, going back to the 2004
OECD per capita peak through 2019, Emerging Market nations have increased their oil footprint
per capita by 30% while growing their population by over 20%, more than twice as fast as OECD
countries. EM countries now comprise 83% of today's global population. To add, oil demand has
grown by 40 mb/d over the past 35 years, with more than 75% of the growth stemming from
Non-OECD nations with aggregate demand surpassing that of OECD countries in 2014.
In OECD countries, we The shape of the oil demand lifecycle per individual is a left-skewed bell curve. Naturally,
believe extended lifespans consumption ascends as a child grows – continuing to increase throughout the teenage years
will elongate the tapering and peaking as an adult with hauling kids on minivan road trips during the weekend and
tail end of the oil demand business travel during the week. Per capita demand begins to taper leading into retirement,
curve (an individual tends to downsizing of housing, less discretionary travel and extracurricular activities. This blueprint is
use less energy in their later true for much of the developed world. The concept of immortality does not change the shape
years – but an extension of of the demand curve, but elongates the tapering tail end of the curve. In other words, energy
these years correspondingly intensity per person continues to gear down in the event of the average OECD lifespan
increases demand). elongated by an extra five years. This is particularly the case if the additional years are spent
in group senior housing facilities with notably less discretionary driving and travel.
As the life expectancy of
individuals in emerging The emerging markets part of the world is different. Energy intensity is in some part a function
markets improves, so too of development regardless of the specific energy needs of a single nation. Life expectancy
does the associated energy historically has a high correlation with energy demand in the emerging world. The rationale
consumption – as lifestyles being that as a country develops, its population’s quality of life increases, which implies an
improve, there is a increase in public needs (e.g., access to improved safety, basic necessities, improved air
correlation with greater quality, infrastructure, and healthcare). These public needs – all of which have a reflexive
energy intensity. relationship with industry and economic development – all require increased energy
consumption. This is why increasing the longevity of the average EM lifespan yields a different
picture from an energy intensity perspective than in OECD nations. In short, it is because
lifestyles have improved.
Despite these staggering numbers, the per capita oil demand of non-OECD countries remains
a mere 2.97 barrels vs the 13.29 OECD average. This implies that if closing the per capita gap,
emerging market demand would alone jump to ~230 mb/d with the current population. Even
if the current emerging markets population were to increase demand three-fold, or an implied
~150 mb/d of non-OECD oil demand, the aggregate oil demand per capita would still be less
than Denmark or Sweden.
When looking at the historical regression, if emerging markets were to increase to the current
life expectancy of the average OECD nation, 72 to 80, the implied oil demand per capita more
than doubles from 2.97 to 6.57 barrels. Though there are biological ceilings as well as industrial

development decisions that disjoint the relationship over time, energy intensity inevitably
increases as a country moves up the developmental curve, especially at its infancy when
fundamental energy security to provide basic necessities to the entire population is the
primary objective.
Exhibit 22 - Emerging market life expectancy vs oil demand per capita
EM Life Expectancy vs Demand Per Capita

3.30
3.10
2.90
Oil Demand Per Capita
2.70
2.50
2.30
2.10
1.90
1.70 R² = 0.9592
1.50
60 62 64 66 68 70 72 74
Life Expectancy
Source: World Bank, EIA, RBC Capital Markets

Energy & Utilities: The hydrogen power solution

As we live longer and energy demands increase, we will need evolving energy solutions with
As we live longer and hydrogen, among others, very well being an answer given its particularly broad-based set of
energy demands increase, applications and likely declining cost over time. With greater emphasis on climate change
we will need evolving globally and especially as countries strive to meet Paris Agreement and COP26 goals and/or to
energy solutions, with reach carbon neutrality by 2050 (European Union), hydrogen has regained significant attention
hydrogen power offering a as a potential part of the longer-term decarbonization solution. Specifically, hydrogen has high
broad-based set of energy density (by mass), is storable, and generates no carbon emissions. In addition,
applications and likely hydrogen can be a source of energy across several industries including
declining in cost over time. transportation/mobility, refining, ammonia, methanol, and steel production, among others.
Hydrogen call also provide storage and grid stability for renewable power generation.
While we expect the
transition to take decades, Recently, several countries and companies have announced plans to advance hydrogen
and that fossil fuels will technology. Notably, hydrogen is a core technology in the European Union’s Green Deal. In
remain a prevalent energy addition, Japan and Australia signed a hydrogen agreement earlier this year to advance the
source, we believe hydrogen deployment of hydrogen as a clean energy. In the U.S., NextEra plans to build its first green
provides midstream hydrogen power plant in Florida and Entergy proposed a power plant in Texas with the option
companies with medium- to to use 30% hydrogen. The IEA estimates ~50 targets, mandates and policy initiatives to support
long-term growth hydrogen, with most focused on transport.
opportunities.
Global demand for hydrogen stands at ~70 million metric tons (pure hydrogen) plus ~45 million
metric tons of hydrogen mixture, according to McKinsey. Current demand for hydrogen in the
For Required Equity U.S. stands at ~11 million metric tons. Depending on policy, McKinsey estimates hydrogen
Research Non-U.S. Analyst demand in the U.S. could grow to ~17 million metric tons by the end of 2030 and ~63 million
and Conflicts Disclosures, metric tons exiting 2050 (or ~14% of energy demand excluding industrial feedstock demand).
please see page 259.
While we expect the transition to take decades, and that fossil fuels will remain a prevalent
energy source, we believe hydrogen provides midstream companies with medium- to long-
term growth opportunities and, more importantly, participation in the energy transition. As
we discuss in the report, midstream companies should benefit from the storage and
transportation of hydrogen as well as from carbon capture and storage (CCS) in the generation
of blue hydrogen. We expect the natural gas focused midstream companies to benefit initially
as existing natural gas pipelines and storage facilities can accommodate some level of
hydrogen with minimal, if any, modification. Longer term, midstream companies could re-
purpose existing pipelines to hydrogen or build networks of hydrogen pipelines given their
pipeline expertise.
Applications for hydrogen

Currently, hydrogen’s main use is for industrial purposes (i.e., ammonia, methanol, steel
production, etc.) with virtually all of that hydrogen production from fossil fuels (less than 0.1%
of dedicated hydrogen production comes from water electrolysis). That said, hydrogen has
wide applicability, which falling renewable electricity prices and falling costs of electrolysis can
enable. Hydrogen can store energy, which allows it to function as a battery to complement
renewable electricity. It also has potential to help decarbonize areas in which electricity has
limitations such as heavy trucking, long-range road transport, aviation, and industrial
processes such as steel making. In this report, we will examine applications for mobility,
industrial, grid balancing and energy storage, and heating.

Exhibit 23 - Breakdown of global energy-related CO2 emissions by sector, 2015
Sectors today with no

economically viable
option for deep
decarbonisation
Source: IRENA
Mobility
Aviation, ships, rail, trucks, passenger cars, and industrial vehicles (e.g., forklifts) can use
hydrogen as an energy source. Given the nascence of the technology and specific implications
of each mode of transport (e.g., flammability and pressure issues in aviation), we focus on
mobility applications with the most research, that are most prominent, and appear to be most
promising (at least initially).
Trucking: Our autos team believes both battery electric and hydrogen (fuel cells) have use
For trucking, battery electric cases within trucking. Battery electric technology is better developed and suited for use in
technology is better shorter-haul routes where trucks make their runs and then return to a central charging depot
developed and suited for overnight. Best-use cases for battery electric vehicles (BEVs) include refuse, garbage, buses,
use in shorter-haul routes, etc. (adoption of which has already begun especially in places like China). However, over larger
whereas hydrogen, with its distances, batteries may not be as suitable for the following reasons:
higher energy density and
faster charge times, is  Batteries degrade (limits performance and range over time), which begins to impact the
better used for medium and economics of the truck and truck route (replacing a battery can also be very expensive).
long-haul transport.  Batteries are heavier than the weight associated with fuel cells (could be a ~3–5k pound
difference), which in turn limits payload and hauling capacity and thus impacts the
potential revenue a truck can generate.
 Charging time (can take several hours to charge battery electric trucks fully vs ~15 minutes
for fuel cell trucks, on par with diesel).
Considering these factors, when thinking about medium-haul and long-haul transport,
hydrogen makes sense given its higher energy density, faster charge times, etc. However,
RBC’s auto team caveats that the hydrogen fuel cell technology is more nascent and unproven

than batteries and the fueling structure is very limited, which is likely to weigh on the adoption
timelines of fuel-cell Class 8 trucks.
Forklifts: Fuel cell (hydrogen) and electric forklifts already outcompete diesel-powered
forklifts under optimal conditions. The Hydrogen Council expects the costs of fuel cell forklifts
to decline 20% through 2030 (and become cheaper than electric forklifts in 2023), driven by
savings in hydrogen production costs and fuel cell technology. McKinsey estimates hydrogen
demand of ~360,000 metric tons for forklifts by 2030.
Industrial
Around 76% of hydrogen demand today comes from industrial applications, which include oil
refining (33%), chemical production (40%), and steelmaking (3%), with fossil fuels as the
We believe that blue and
feedstock for the hydrogen. Both immediate and longer-term hydrogen demand growth
green hydrogen production
opportunities from industrial applications exists, in our view, although blue and green
growth may require
hydrogen production growth may require government support in order to scale. In this report,
government support in a
we focus on oil refining, chemical production and steelmaking as these appear the most
number of industries in
promising use cases for hydrogen in the industrial sector.
order to scale.
Oil refining: Hydrotreatment and hydrocracking are the primary uses for hydrogen in refining
and will likely see increased usage, which in turn will likely drive hydrogen demand even
without hydrogen-specific government policies. Hydrotreatment refers to the removal of
impurities (in particular Sulphur) from crude oil. Refineries currently remove ~70% of Sulphur
from crude oil; although increasingly stringent regulations to remove Sulphur content in oil
products will likely drive more hydrotreatment. Hydrocracking refers to the upgrade of heavy
oils, which have also seen growing demand over the years. The IEA estimates Hydrogen
demand from oil refining will grow by 3 million metric tons by 2030. While hydrogen demand
will likely grow on its own, we note that fossil-fuel based hydrogen (with no CCS) currently
accounts for 20% of refining emissions and emits 230 million metric tons of CO2 (MtCO2). Policy
support will likely be necessary to accelerate cleaner hydrogen demand.
Currently, the IEA estimates enough refinery capacity exists to meet future refining needs,
which eliminates the need for new refineries. In the U.S., existing refineries can supply ~60%
of their hydrogen needs, with ~40% from byproducts and 20% from on-site SMR. Since
refineries already have SMR units and there is no need for new refineries, blue hydrogen
appears to be the clearer pathway to supply clean hydrogen to refineries vs electrolysis (green
hydrogen). The IEA estimates CCS would increase costs by $0.25–0.50/bbl, thus governments
may need to enact policies such as a carbon tax, or low-carbon fuel standards similar to those
in place in some U.S. states, Canada, and Europe.
Chemical production: Ammonia accounts for 67% of hydrogen demand from chemicals (31
million metric tons of hydrogen per year), methanol accounts for 26% (12 million metric tons
of hydrogen per year), and various other applications account for the remaining 7%. Within
ammonia, fertilizers represent 80% of hydrogen demand. Consequently, growing global
populations may provide a tailwind for ammonia demand (and hydrogen), with the IEA
estimating hydrogen demand growth of ~7 million metric tons (~22%) by 2030.
However, the choice between blue and green hydrogen in chemicals is not as clear-cut as with
oil refining. The choice will depend on electricity prices, and we suspect will likely be a
combination of the two. At electricity prices of $15–50/MWh, using electrolysis to produce
ammonia becomes competitive with blue hydrogen, and at $10–40/MWh, electrolysis
becomes competitive with natural gas without CCS (for reference, in 2019 the global weighted-
average levelized cost of electricity (LCOE) from utility scale offshore wind was $53/MWh and

from solar photovoltaic was $68/MWh). Scaling the technologies in accordance with the goals
of the Paris Climate Agreement creates challenges for both blue and green hydrogen.
 Blue hydrogen: Decarbonization of both ammonia and methanol production using natural
gas with CCS would require 11,405 Bcf of natural gas by 2030 (equivalent to 10% global
gas demand today), an 87% increase vs current natural gas consumption of 6,038 Bcf.
Ammonia and methanol demand growth and the phase-out of coal use drives the increase
in natural gas use. Decarbonization would also require the capture of 450 MtCO2/year by
2030. Based on the size of the biggest current CCS facilities (1 million metric tons of annual
CO2 capture, according to the IEA) blue hydrogen would require an additional 450 CCS
projects (or ~48/year).
 Green hydrogen: Satisfying energy demand for methane and ammonia with green
hydrogen would require 3,020 TWh/year of electricity (11% of today’s global electricity
generation) and 350–450 GW of electrolyser capacity. Based on current electrolyzer
designs of 100 MW, green hydrogen production for methane and ammonia would require
3,500–4,500 electrolyzers – roughly one electrolyzer built daily through 2030.
Steelmaking: The two main methods to produce steel include blast furnace-basic oxygen
furnace (BOF) and direct reduction of iron-electric arc furnace (DRI), which account for ~90%
and ~7% of production, respectively. BOF is cheaper and does not need dedicated hydrogen
(though it produces hydrogen as a byproduct), while DRI uses hydrogen as a reducing agent in
the production of steel. Worldwide, hydrogen production for DRI totals 4MtH2, with 75%
produced with natural gas and 25% produced with coal. To produce all virgin steel with DRI,
hydrogen demand would be 57MtH2 (though producing this much hydrogen would require as
much electricity as India, Japan, and Korea consume today combined).
Currently, virgin steel accounts for more than ~75% of steel production, with the remaining
25% coming from recycled steel. Accordingly, hydrogen demand from steelmaking depends
on the growth of recycled steel, and the growth of DRI in the production of new steel. In any
scenario, DRI is unlikely to make significant inroads in the short term, as BOF is cheaper and
the industry currently has overcapacity at a time when many BOF plants are only 10–20 years
old. Consequently, DRI’s best opportunity to make inroads will come in the next investment
cycle, or will need strong government support, in our view.
With that said, DRI use has been growing (it does benefit from being less capital intensive than
BOF), and if it continues to grow at its current pace, it could account for 14% of steel
production (based on IEA estimates), which would double steelmaking hydrogen demand. In
a scenario more aligned with the Paris Climate Agreement, both recycled steel and virgin steel
produced through DRI will grow even more rapidly. Depending on the cost of electricity and
natural gas, electrolysis could produce green hydrogen, or SMR could produce blue hydrogen.
However, as is the case with other industrial applications, low-carbon hydrogen production
may require government support.

Space: To eternity and beyond

Long the domain of governments for national security and scientific purposes, a commercial
space market is rapidly emerging. As humanity continues to live longer (and potentially
expands its geographic footprint outwards), we believe space will become increasingly
relevant. The key drivers of this market development include substantial reductions in the
costs to access space, on-satellite capacity and capability expansion, and the opportunity
space presents for greater human exploration.
There are currently four primary space markets we are tracking:
 Space tourism
 Earth observation
 Communications
 Space infrastructure and exploration
Near term, increased access to space provides many advantages for medical research. The
Microgravity environment in space, for example, allows cells to grow differently (slower and
in more of a 3D pattern) than on earth, which allows for a longer culture process. The
International Space Station (ISS) is a very good environment for protein crystal experiments.
These protein crystals are used in many pharmaceutical drugs, and can be important to
understand when looking at different diseases.
As costs for space access continue to decline, there are many companies that are building
private space stations, which will significantly expand research opportunities in space. These
efforts are not limited to medical applications, but space will also support advanced research
in areas of energy, materials and transportation.
Longer term, many believe humans will eventually look to colonize parts of the moon, or
As capital continues to flow
even other planets, such as Mars. For example, Elon Musk has been very vocal that one of the
into private space ventures,
objectives of SpaceX is to allow humans to one day live beyond planet Earth. Space can
infrastructure is getting
represent an opportunity for a fresh start, or a way for those with the resources to one day
built that will eventually
leave earth, which will reflect divisions among the global population. For now, those with the
allow for much greater
means are limited to a ~5-minute ride into space on either a Virgin Galactic or Blue Origin
access to the moon and
spacecraft. However, as capital continues to flow into private space ventures, the
beyond.
infrastructure is getting built that will eventually allow for much greater access to the moon
and beyond.
Exhibit 24 - SpaceX Starship rocket
Source: SpaceX

Space, however, is a long-cycle business. The primary consideration for human access to
space will remain safety, which will limit the pace of cost reductions and human space flight
capacity. Moreover, the capital requirements for the industry are substantial. While re-
usability on the rockets – which is key to the cost reductions – is important, the
industrialization of the supply chain and manufacturing capacity will take several years. SpaceX
is at the forefront of rocket development, and its Starship (pictured above) is expected to
provide high-volume lift capacity to the moon and other space destinations.
Many firms today are building private space stations. These will serve as a launching pad for
greater human access to space for both tourism and exploration objectives. The demand for
launch services is expected to see substantial growth, and the number of satellites orbiting the
earth will expand exponentially as low-earth orbit (LEO) constellations expand. As we think
towards the greater commercialization of space, space vacations and tourism, and eventually
colonizing portions of the moon, the demand for space infrastructure will be substantial, as
the potential for permanent life beyond planet Earth becomes closer to reality.

The Individual Revolution
Table of contents
The Individual Revolution – Introduction ........................................................................... 48
Financials: What am “I” worth? How to play the self-monetization economy .................... 52
Blockchain: An engine of the Individual Revolution? .......................................................... 53
Blockchain: NFTs enhancing the customer journey ............................................................. 59
Insurance: Just for you ....................................................................................................... 61
Media & Telecom: Personalized content ............................................................................ 66
Consumer: Power to the people ......................................................................................... 68
Internet: Gig economy........................................................................................................ 70
Internet: “Marketplace theory” .......................................................................................... 72
Healthcare services: The rise of the U.S. healthcare consumer ........................................... 73
Power: The rise of resilient prosumers ............................................................................... 76
Genetic medicine: The next frontier of personalized therapeutics ..................................... 82

The Individual Revolution – Introduction

The Individual Revolution: Social media, immense amounts of personal content and
consumer-first applications are shifting the balance of power away from traditional
institutions and into the hands of individuals. This will create a new world order in every aspect
of the global economy and will likely be the single biggest disruptive force to existing centers
of power. In addition, it could create new economies such as the monetization of personal
data (and the associated parameters around that data ownership). Consequently, as power
Social media, immense shifts away from institutions towards individuals, global societies will deal with both the
amounts of personal positives and negatives.
content and consumer-first
applications are shifting the What is driving The Individual Revolution
balance of power away The shifting balance of power from institutions to the individual has been catalyzed by several
from traditional institutions drivers, including general declines in trust of key institutions, advancements in
and into the hands of communications technology that enable individuals to align around a common set of beliefs,
individuals. as well as advances in science and technology, which allow consumers to collect significant
data about themselves and their bodies.
Perhaps the biggest driver of The Individual Revolution is the general decline in trust for the
most established institutions (governments, education, healthcare, and even large
corporations). As shown below, based on Gallup survey data, the percentage of U.S. adults
having “great” or “quite a lot of trust” in major US institutions (i.e., congress, the presidency,
the church or organized religion, public schools, the medical system, and big business) has
declined significantly since the 1970s for all institutions. Importantly none of these institutions
has more than 50% of respondents having “great” or “quite a lot of trust” in them. Trust in
traditional institutions is even lower among Gen Z and millennial groups, as shown by a study
by Morning Consult. The data is clear and the problem is getting worse – which is motivating
consumers to take matters into their own hands.
Exhibit 25 - Trust for major American institutions has declined significantly since the 1970s
Source: Gallup, RBC Capital Markets
In addition to rejection of government, we also see rejection of corporations as a major risk of

unrest and instability. From the United States to South Korea, in 2021, waves of labor unrest
began rippling globally. Within the span of three months, union workers across three major
food companies (Mondelez, PepsiCo, Kellogg’s) engaged in massive workforce strikes; similar
strikes happened across industries, with 10,000 workers going on strike at John Deere, 24,000

healthcare workers at Kaiser Permanente authorizing a strike, and ~80,000 union members in
South Korea rallied across over a dozen cities, while half a million walked off jobs as part of a
Progress in genetic general strike in late October. Major themes across strikes have been a rejection of attempts
medicine will tackle several to impose two-tier classes of workers, demands for better working conditions, and increased
genetic diseases in the not and equal pay at a time of gender inequality.
too distant future,
improving lives for millions Additionally, advances in science and technology have allowed individuals to collect more data
of patients worldwide. about themselves and their bodies and allowed pharmaceutical companies to make significant
progress on personalized therapeutics. Progress in genetic medicine will tackle several genetic
diseases in the not too distant future, improving lives for millions of patients worldwide. The
mRNA vaccines for COVID-19 are probably the epitome of what genetic medicine can do for
both humanity and the companies developing the drug or vaccine.
Advancements in science and technology have also enabled the movement of devices to retail
shelves that were once exclusive to hospitals, allowing consumers to track a large amount of
data on their bodies. Take for example the finger pulse oximeter, which measures blood
oxygen saturation. The technology for this was developed in the 1930s, originally measuring
via the ear, with the first finger pulse oximeter not commercialized until the 1970s in Japan,
and the 1980s in the U.S. Pulse oximeters have been staples in hospitals for decades.
Developed to meet the demand for measuring oxygen during surgery once the use of
ventilators during anesthesia became ever more common, they revolutionized the work of
anesthesiologists. In certain wearables, features such as pulse ox monitoring are already
available, such as in the Apple and Samsung smart watches. With further technological
developments, we’d expect current wearable devices to increase the number of health data
they can track (e.g., glucose levels) and we’d expect new devices to be introduced increasing
the amount of information consumers can obtain on themselves.
How The Individual Revolution is manifesting

Bucking traditional lifestyles, employment
The days of lifetime employment with a single company that provides a pension and
retirement health insurance are long gone for most workers, and many will cycle through more
than a dozen jobs in their working years, either by desire or necessity. Much of this change in
recent decades has been driven by corporate efficiency initiatives, global competition, and
changing regulations. However, in the last decade, the shift has also been pushed more
aggressively by workers demanding more control over their careers, the work they are doing,
when they work, and the environment in which they work.
The onset of the COVID-19 pandemic that drove a mass and sudden shift to working from
home has also shocked the labor force. This more recent labor-driven change has spurred
growth of the “gig” economy, a labor market that is distinguished by the prevalence of short-
term contracts or freelance work rather than permanent jobs. Much of the recent media
coverage of the gig economy has focused on the millennial generation and their desire for
more work flexibility, and also on the “sharing economy” through digital platforms like Uber,
Task Rabbit, and Airbnb. Both are meaningful drivers, and the sharing economy is indeed
growing rapidly. However, we believe that a broader definition including temporary workers,
on-call workers, contract labor, freelancers, and independent contractors more fully describes
the sub-set of alternative or independent workers (i.e., those doing project or task-based work
and without a long-term relationship with an employer).
The appeal of a traditional 9-to-5 long-term job with a single employer has diminished. For
many, this may be rooted in the disappointment and disillusionment workers experienced
during the 2001 and 2008 recessions (and for younger workers, the experience of their
parents). Why should an employee stay devoted to one job/one boss if there is no reciprocity?
Another facilitator of the growing trend towards alternative work arrangements is the growth
of the sharing economy and in particular digital platforms that act as efficient marketplaces to
connect workers with consumers or companies looking to acquire their services. This includes
a wide range of businesses like Uber (ride hiring), Upwork (a professional freelancer
marketplace), TaskRabbit (a lower-skill freelancer marketplace), and Airbnb (accommodation
rentals). These and many other digital marketplaces harness technology and provide an
efficient way for independent workers to connect with those needing their services. The
McKinsey report “Independent Work: Choice, Necessity, and the Gig Economy” from October
2016, estimates that 15% of independent workers use these digital marketplaces today.
Generalizing broadly, the millennial generation in particular is seen as demanding more

flexibility and work–life balance, having more desire to understand the motivations of their
employer, and be contributing to an organization that is doing good in addition to just driving
profits. However, rising distrust of large organizations appears to be felt across generations,
which we believe is leading to the growing desire to “be one’s own boss” and have more
control over what work is done, what projects are chosen, and where and when work is
performed.
Along with changing Bucking traditional lifestyles, marriage and children

preferences in employment, Along with changing preferences in employment, we also see a global shift in attitudes towards
we also see a global shift in marriage, children, and family. Delaying marriage and children are trends seen both in the U.S.
attitudes towards marriage, and abroad; we also see a trend of the milestone of having a child increasingly replaced with
children, and family. pet ownership. Both the age of marriage and age of first child are trending higher with more
Delaying marriage and people spending more of their 20s and 30s single; in the mid-90s the share of the unmarried
children are trends seen population aged 22–35 surpassed the married population and continued rising to the present.
both in the US and abroad Around 1988, when the U.S. share of pet-owning households was 56%, around 45% of 22–35-
and we see a trend of the year-olds were single; by 2015, the share of the 22–35 population without a spouse was over
milestone of having a child 65%. Family size is also shrinking, with Americans having fewer children. In 1976, the share of
increasingly replaced with women aged 40–44 who had 3+ children was 65%; in 2014 this had shrunk to 38%.
pet ownership.
These are not phenomena limited to the U.S. The mean age of first marriage for all OECD
countries has been rising year over year, and the number of marriages per 1,000 people has
been declining over time for the vast majority as well. We believe these trends are the natural
result of the higher educational attainment and labor force participation of women over time,
and has been further exacerbated by recessions and austerity measures that keep young
people from moving forward with marriage and parenthood. In China, a country with a more
collective vs individual societal structure, marriage rates have also been dropping for at least
six years in a row. In 2019, the country’s marriage rate reached its lowest level in 14 years. The
marriage rate has continued to fall despite the country lifting its one-child policy. Similar to
other countries, in China, women have started outnumbering men in both undergraduate and
postgraduate programs.
We also believe some of the motivation behind the rejection of the institution of marriage ties
to inequality. Across the globe, women are still expected to carry out more of the child-rearing
and household duties – a phenomena that persists even in dual-income households,
households where both partners earn the same, and in households where women make more.
The Bureau of Labor Statistics’ American Time Use Survey showed that women aged 25–34
spend more than 50% more time on housework than men in the same age ranges; while the
gap is smaller for women who work, they still spend almost 25% more time on housework than
men. In a Gallup survey of housework, in no combination of questions were men more likely
to be doing a greater share of the housework than women (though the difference is less severe
in partnerships where the woman is the higher earner).

The data and personalization exchange

The Industrial Revolution of the late 1700s and the introduction of assembly lines and mass
production in the 1900s paved the way to the modern economy and society, largely based on
standardization of products and services to reach broader audiences and consumers. Henry
Ford’s famous quote “any customer can have a car painted any color that he wants so long as
it is black,” when the Ford Model T was introduced in 1909 summarizes this concept. This
economic model puts significant power in the hands of institutions and companies, who are
the provider of the standardized goods and services, thus, directly and indirectly, influencing
individual behaviors and choices. While this economic model will certainly remain the basis of
modern societies, we expect the next decade will see the rise of another revolution: The
Over the last decade, the Individual Revolution, which we expect will start to shift the power back towards individuals
rise of social media and and their personal choices.
several other technological
advances (e.g., Over the last decade, the rise of social media and several other technological advances – such
smartphones, smart as the adoption of smartphones, smart devices, and wearables – has led to an enormous
devices, wearables, etc.) amount of data being collected on individual habits, health, consumption, and preferences. At
have led to an enormous the same time, companies realized the power of this information as a way to maximize value
amount of data collected on for each customer by offering targeted products and services. As consumers see more targeted
individuals. offerings they are starting to demand even more personalized products and services and are
willing to pay a premium for them.
At the same time,
companies and individuals In Latin literature, Appius Claudius Caecus uses the sentence “homo faber suae quisque
are now realizing the power fortunae,” meaning “every man is the maker of his own destiny.” We believe this will be a key
and value of this way of living for most consumers over the next decade. Consumers will want to bring the
information, and decision making back into their own hands and away from mass-influenced decisions and
challenging existing sharing trends. Within Consumer, we believe this will lead to a demand for personalized products that
agreements. better align with individual’s preferences as well as marketing messages concentrated on
individual choices rather than mass products and messages. We also see the disruptive
technologies such as blockchain and non-fungible tokens (NFTs) as ways to enhance consumer
personalization and promote exclusivity. Similarly, in telecommunications, it will lead to even
more personalized content from social media to news and entertainment.
In healthcare the influx of capital, combined with some critical scientific breakthroughs, led to
advances in genetic medicines and vaccines that are changing the lives of patients worldwide.
These breakthroughs combined with the large amount of health data collected with existing
wearable devices (as well as patented technologies not yet launched) will lead to personalized
therapeutics on a much larger scale over the next decade. We’d also expect more customized
services and solutions in financials and insurance, as well as individual demand for open
investment platforms where consumers can make transactions of their own choice in a simpler
and more cost-effective way.
We see the battle over data, in terms of data protection and data monetization, as a key part
of the Individual Revolution, as consumers and governments are increasingly realizing the
power of consumer data. Ultimately, we believe data protection regulations will make it
harder for companies to access consumer data and we see the evolution of business models
centered on data monetization. We also see geopolitical tension rising among sovereign
countries over the control of individual data, as demonstrated by the U.S.–China tension over
the control of social media site TikTok.

Financials: What am “I” worth? How to play the self-monetization economy

As consumers increasingly recognize that they are the product as it pertains to consumption
of social media, we believe companies’ ability to extract vast amounts of data freely from
consumers is coming to an end. As a result, we believe there needs to be a mechanism to
exchange value to consumers from social media companies (and others), such that consumers
can be rewarded (or paid) for the use of their personal data, which is a concept we refer to as
self-monetization. Digital tokens are well equipped as a means to monetize personal data as
We believe companies’ specific companies can create their own digital tokens, which can easily be transferred to a
ability to extract vast consumers’ digital wallet or potentially directly linked into the social network’s platform. In
amounts of data freely from many ways, we could begin to think of this as the ultimate distributed and variable workforce,
consumers is coming to an whereby millions of individuals would be (at the individual’s choosing) tethered to specific
end. organizations that rely on aggregation of mass data. As the proliferation of AI, Machine
Learning and Quantum computing evolves, the ability to predict or even steer consumer
We also we believe there behavior will increase, which will ultimately beg the question of “free will” and who truly is in
needs to be a mechanism to control.
exchange value from
companies who do collect Not unlike the creator economy, whereby large technology platforms utilize creators to drive
and use information back to engagement (similar to influencers), we believe tech platforms who monetize our data for free
their consumers. will have to create a similar direct monetization channel. If we look to the creator economy,
also in its early days, as a guidepost for the self-monetization economy, we believe the
opportunity could prove very large and disruptive, as corporate brands are expected to spend
~$15B on influencer marketing by 2022, according to Mediakix.
Exhibit 26 - Sources of revenues by surveyed creators (%) n = 2,000

77%
5% 5% 5% 3% 3% 2% 1%
Brand deals Ad share No revenue yet Started own Affiliate links Monetary tips Courses Subscriptions
revenue brand
Source: CB Insights, RBC Capital Markets

Blockchain: An engine of the Individual Revolution?

To start, it’s important to understand what blockchain is as there is often a lot of confusion.
Blockchain is a type of distributed ledger, and in simplified terms, blockchain is simply a
decentralized database with the following unique characteristics:
 Decentralized: no one entity controls the database

 Distributed: everyone has a copy of the database
 Immutable: records cannot be changed, only amended
Because blockchain is decentralized, it tends to be less efficient as a whole compared to a

centralized database. Typically, several validators and other resources (such as additional
energy) need to be involved for each transaction on a blockchain, whereas a centralized
database requires minimal resources to enter transactions. Many believe that these
Though blockchain inefficiencies are outweighed by benefits derived from the three characteristics listed above
technology has been around (decentralized, distributed, and immutable).
for quite some time, it has
only recently matured to a Some quick background
level that is suitable for Though blockchain technology has been around for quite some time, we believe the
banking and the financial technology had not matured to a level that was suitable for banking and the financial markets
markets in terms of scale, in terms of scale, speed, flexibility, and autonomy. Though different markets, products,
speed, flexibility, and services, and activities will have different requirements, the technology itself appears to have
autonomy. evolved enough since the Ethereum launch in 2015 to meet the general critical demands of at
least certain segments in the banking and financial markets. One of the most critical
advancements in terms of scaling and speed was the change in the consensus mechanism to
validate transactions from the original energy intensive Proof of Work (PoW) mechanism that
is still being used today by the Bitcoin and current Ethereum protocols to a general overall
adoption of a more energy efficient Proof of Stake (PoS) mechanism currently used by the
majority of other blockchain protocols (Ethereum will transition to PoS likely by 2023). The
transition to PoS is a key step in reducing the energy intensity of the crypto space.
Another critical transformation in the technology was an increasingly accepted view of a

multiple blockchain universe with interoperable blockchain protocols. This opened the door
for development of more specialized blockchains that not only enhanced scale and speed, but
also provided increasing flexibility and autonomy. A flurry of smart contract platform
blockchains (blockchains that act as computers to run programs for others) have been
developed the last few years, but one of the most interesting, yet less known is the Cosmos
protocol, which is a sovereign blockchain on its own, but also part of the overall Cosmos
Network, a network of sovereign and interoperable blockchains. Aside from being
interoperable, what’s also interesting about these blockchains on the Cosmos network is that
they were built using the Cosmos SDK a software development kit (SDK) to build application-
specific blockchains. Why is this significant? Essentially, the Cosmos SDK lowers the barrier to
entry for blockchain development, allowing for the business side of the house to drive
development instead of the developer side of the house driving development.
From an architectural perspective, there are three general layers of blockchain development:
Consensus layer: This is the layer where the consensus mechanism resides to determine
the validity of transactions.
Networking layer: This layer is responsible for the propagation of transactions and
consensus-related messages between different validators.
Application layer: This is where the application program resides.

Previously, if an entrepreneur wanted to build a blockchain, the entrepreneur would need to

build all three layers from the ground up, despite only being interested and having expertise in
the application layer. The Cosmos SDK essentially “packages the networking and consensus
layers of a blockchain into a generic engine, allowing developers to focus on application
development as opposed to the complex underlying protocol.” This allows for start-ups to focus
on the business-use case and value propositions of blockchain and less on the technology.
We think the ability to create a blockchain from scratch to a broader group has meaningful
implications in the banking and financial markets:
 First, developers can customize a blockchain to natively embed certain programs and
features as opposed to having these programs and features being executed at the smart
contract level. We believe this has the potential to greatly enhance scaling, speed,
efficiency, and usability.
 Second, developers have greater flexibility in meeting regulatory compliance
requirements that range from handling confidential and private information on a public
blockchain to meeting KYC/AML requirements.
 Third, in being a sovereign blockchain, blockchain applications can better meet the
necessary requirements in a fluid regulatory landscape. As an example, an application
running on the Ethereum blockchain must work within the Ethereum governance
framework. What this means is that any bug fixes or new features must receive approval
from the Ethereum platform itself before any changes can be adopted. A sovereign
blockchain would allow developers full control to make changes as needed when needed.
Regulation needed to catch up

The regulatory landscape is very fluid as blockchain development has been rapid, presenting
to regulators novel business and financing paradigms that do not appear to fit neatly into
current legal and regulatory definitions. Though a separate and exhaustive report is needed to
The regulatory landscape is properly cover the current pressing regulatory issues, we do want to highlight one key change
very fluid as blockchain that we think has been impactful to the banking industry. In a January 4, 2021 interpretive
development has been letter, the OCC approved the use of stablecoins by commercial banks for banking transactions,
rapid, presenting to among other things. We find this to be interesting with the following thoughts:
regulators novel business
 First, this interpretive letter clarifies the issuance and use of stablecoins as permissible
and financing paradigms
bank activities by national banks, and therefore, banks do not need to apply securities
that do not appear to fit
laws to bank-issued stablecoins.
neatly into current legal and
 Second, banks can now onboard traditional financial transactions in fiat dollars to
regulatory definitions.
stablecoins on a blockchain.
 Third, regulators are increasingly requiring crypto companies to follow KYC/AML
guidelines. Banks already have an expertise in KYC/AML compliance and the use of
blockchain could make the process even more compliant.
 Fourth, we believe bank stablecoins will likely hold true 1:1 exchange rates, since the
stablecoins will likely be backed 100% by bank deposits.
 Fifth, because banks are highly regulated and insured by the FDIC, bank stablecoins have
essentially zero counterparty risk, which is not the case with third-party non-bank
stablecoins.
The OCC interpretive letter was a critical step in a September 13th transaction where NYCB
facilitated the payment process through the minting and burning of stablecoins between
buyers and sellers in the secondary trading of Figure’s privately-held shares on the Provenance
blockchain. To our knowledge, NYCB became the first U.S. bank to mint a stablecoin on a

blockchain backed by fiat deposits. This stablecoin, known as USDF, is led by a consortium that
includes several community banks to develop standards and practices for the stablecoin.
Understanding the value propositions of blockchain

Because it is decentralized, distributed, and immutable, blockchain offers distinct value
propositions, particularly as it relates to banking and the financial markets in general:
 Displacing trust with truth

 Real-time bilateral settlement
 Real-time servicing reports
 Enhanced security
 Automation
 24/7/365
Displacing trust with truth: Since transactions are immutable on a blockchain when digitally
native (i.e., transactions are entered directly onto the blockchain), there is no need to trust
third parties for custody or attestation in many situations. The blockchain allows everyone to
know in certainty that an asset is in fact what is being represented.
Real-time bilateral transaction settlement: By acting as a transaction ledger, custody

platform, and legal ownership registry, blockchain is able to offer real-time bilateral
transaction settlement by eliminating traditional intermediaries and processes. This ultimately
eliminates counterparty and settlement risk. Typical settlement time for traditional exchanges
is T+2 days with brokerages and clearinghouses, like the DTCC, acting as intermediaries. This
elimination of counterparty and settlement risk could reduce regulatory capital requirements
Blockchain offers distinct for banks, in our view.
value propositions:
displacing trust with truth; Real-time servicing reports: Since transactions settle in real-time and recorded on the
real-time bilateral blockchain, it becomes possible to provide real-time servicing and performance reports on
settlements, real-time loans that are digitally native to the blockchain. As an example, it could be possible to provide
servicing; enhanced real-time remittance reports on RMBS securities down to the underlying loans rather than the
security; automation; the typical 30+-day remittance reporting cycle. We believe this higher level of transparency could
ability to operate 24/7/365. lead to improved trading liquidity in the primary and secondary markets.
Enhanced security: Because blockchain is decentralized (no one entity has control over it) and
distributed (many entities have copies of it), there is no single point of attack. That being said,
online platforms of any type remain vulnerable to certain types of attacks, such as distributed
denial of service (DDoS) attacks.
Automation: One of the key benefits of blockchain is automation. This is largely done through
the use of smart contracts, which are programs stored on a blockchain that run when
predetermined conditions are met. Examples of smart contract automation include credit
auditing for loans, KYC/AML compliance, trade settlement procedures, loan servicing
procedures, certain due diligence procedures, custodian functions, and many more.
24/7/365: Another key benefit of blockchain is the ability to execute transactions 24 hours a
day, 7 days a week, and 365 days a year, which may ultimately push the financial exchanges
into doing the same.
The approach to realizing the full value proposition of blockchain

A key observation to comprehending the value of blockchain is understanding the full life cycle
of a financial asset and recognizing that current value chains are comprised of specialized,

We believe blockchain discrete business processes. A certain level of friction exists within the linkages of each
projects will need to focus specialized, discrete business process. To recognize the full potential of blockchain and deliver
on the full life cycle of a compelling value, we believe blockchain projects will need to focus on the full life cycle of a
financial asset and financial asset and encompass the entire value chain, converting to an overall end-to-end value
encompass the entire value platform where specialized business models can plug in and offer their expertise. Likewise,
chain, converting to an blockchain projects that focus solely on a specific specialized business process will offer a lower
overall end-to-end value value proposition and have a higher degree of failure, in our view.
platform where specialized
business models can plug in The last few years has seen a flurry of blockchain projects. Many of these blockchain projects
and offer their expertise. are developer led and generic, allowing for multiple use cases in multiple industries and
businesses. This approach may work for many industries, but may be more difficult to
Likewise, blockchain penetrate in the highly regulated and entrenched traditional banking and financial markets.
projects that focus solely on These markets are very complicated and mature, surrounded by an entire ecosystem of
a specific specialized industries providing systems and services with defined processes. The inertia of the ecosystem
business process will offer a is very strong, and blockchain projects entering these markets would need to provide
lower value proposition and compelling value to disrupt the ecosystem. In order to do this, a blockchain project would likely
have a higher degree of need to look at the full life cycle of a financial asset and be tailored to that life cycle as best as
failure, in our view. possible. Additionally, it may be difficult for entrenched businesses to see beyond their silos
and their current processes to realize the full value proposition of a blockchain in the life cycle
of a financial asset. This is why we find the Cosmos SDK so interesting. It allows for a financial
start-up with a full understanding of the life cycle of a financial asset and no legacy
infrastructure to deal with to rapidly build and deploy a specialized end-to-end financial
platform blockchain. We believe this is where blockchain can deliver compelling value with
high value propositions. One of the key takeaways that we’ve seen with the rise of the retail
trading platform, Robinhood Markets, is that if the value proposition is high enough, business
models and entrenched businesses will have to adjust.
Markets with high potential for disruption in the near term

Questions to ask
To understand the markets that we believe may have a high potential for disruption from
blockchain, we list the following questions to ask in light of the valuation propositions
discussed:
 Do the underlying assets trade? Every time an asset trades, there is usually a certain level
of friction, such as third-party vendors like custodians, vaulting services, etc. One of the
key benefits of blockchain is that it greatly reduces, and sometimes eliminates, this
friction.
 Is there a lot of trading volume? The more an asset trades, the higher the level of friction,
and the higher the value proposition of blockchain.
 Does settlement time matter? If a transaction does not settle instantly, then is there a
cost to this, such as higher liquidity, collateral, or capital requirements?
 Does it require a lot of recycled diligence work? Sometimes on asset pool trade, the buyer
will have a team of lawyers and auditors checking on the reps and warranties of the seller’s
team of lawyers and auditors. But as we highlighted earlier, one of the key value
propositions of blockchain is that it displaces trust with truth, allowing one to know in
certainty that an asset is in fact what is being represented.
 Are real-time performance reports of underlying assets valuable and to whom? The
more buyers, investors, and regulators find value in the real-time performance of the
underlying assets, the higher the value proposition of blockchain.
 Is there an inefficient process? An inefficient process is not necessarily related to
blockchain value propositions, but may provide more leverage in changing how current
processes are done. Often times in the financial industry, there are archaic processes that
have been kluged together resulting in inefficient processes that have an infrastructure
and inertia that is often hard to break unless there is compelling value to the change.
 Is the process long and complicated with various internal and external parties? With the
use of smart contracts, blockchain could automate the workflow process between various
parties and provide increased transparency for each party.
 Are there voluminous datasets to work with that are well defined, consistent, relevant
and used often in processes? Assets that have voluminous datasets that are well-defined,
consistent, relevant and used often in processes are ripe for smart contract automation
and filtering.
 Does the activity involve dealing with federal, state, and local governments? Generally,
we view the higher the level of government involvement in a process, the harder it is to
achieve meaningful change, which may be slow if achieved.
Markets with high potential for disruption: We believe the asset-backed securities (ABS)
markets including MBS have a high potential for disruption from blockchain that includes the
following underlying assets: mortgage loans, auto loans, student loans, credit card receivables,
and equipment leases. The mortgage market appears to offer the highest potential for
disruption given the origination volumes, level of securitization and secondary market trading,
We believe the asset- required degree of diligence work, the voluminous structure-friendly datasets to work with,
backed securities (ABS) and an overall process that many consider sub-optimally efficient. Within these high disruption
markets including MBS have markets, certain businesses, such as lawyers, auditors, custodians, and others, could see
a high potential for varying degrees of impact.
disruption from blockchain.
In addition, we believe In addition, we believe there could be potential for spillover into the more traditional fixed
there could be potential for income and equities securities markets. As noted earlier, NYCB facilitated the secondary
spillover into the more trading of Figure’s privately held shares. In a subsequent press release Figure completed its
traditional fixed income and secondary offering, noting that its Marketplace trading platform “is the first of its kind and
equities securities markets. allows for real-time, bilateral trading and immediate settlement of private company shares.
This represents a significant improvement from the current 60+ day process to trade equity in
private companies.” Figure also noted that the platform saved over 90% of the traditional fees
associated with the secondary trading. The value propositions appear very compelling, and we
imagine this could add pressure to the debt and equities ecosystem, though it remains too
early to tell.
Blockchain and banking – A closer look

Though it remains to be seen if the overall number of blockchains increases or declines, in
In a 3–5 year timeframe, we highly specialized and regulated markets like banking and finance, we currently expect to see
expect the market to firm an increasing number of specialized blockchains that have an expertise in a specific area in the
up with the dominant next 1–3 years with some dominating and others dwindling. In a 3–5 year timeframe, we
blockchains holding most of expect the market to firm up with the dominant blockchains holding most of the market share
the market share of activity of activity in their respective fields with interoperability between blockchains to some extent
in their respective fields and dependent on business use case. Ultimately, we expect these blockchains to change the
with interoperability business models of some businesses within their respective ecosystems. Some businesses will
between blockchains to be more impacted than others, with some thriving from new or enhanced value propositions,
some extent and dependent while others face continual structural pressures.
on business use case.
With the OCC giving banks approval to issue stablecoins for banking transactions, it could be
possible for different banking stablecoins to emerge with the potential for one taking
dominance over the next two years. The stablecoins would be used to on-ramp financial
transactions on a blockchain, but could also potentially be used as a form of real-time gross
settlement. Bank stablecoins are still in the very early stages and remains to be seen the level
of adoption and usage.
We’ve also noticed a trend of sorts over the past two years between fintechs and SMID-cap
banks. Both appear to have incentives that are somewhat aligned and capabilities that the
other party does not have. Fintechs are quick, nimble, have zero legacy infrastructure to weigh
them down, come in with fresh eyes capable of seeing through various silos, and have an
expertise in understanding the capabilities that technology can provide, but lack the
capabilities that a banking license provides. On the other side, SMID-cap banks are hungry for
loans, fee income, deposits, and ways to manage expenses lower. Though they have regulation
and more infrastructure to keep in mind than fintechs, SMID-cap banks have much more
flexibility than large cap and super regional banks. In the last 10+ years, large cap and super
regional banks have invested heavily in tech spend, and that has shown through in terms of
improvements in digital statistics in both the consumer and wholesale banking. Given all the
regulations, investments, and legacy infrastructure that large cap and super regional banks
must factor in, blockchain could provide an opportunity for SMID-cap banks to leap frog larger
banks and take a leadership role in certain areas.

Blockchain: NFTs enhancing the customer journey

We see an opportunity for new and disruptive technologies such as blockchain and non-
fungible tokens (NFTs), to enhance the customer journey and levels of personalisation beyond
simply knowing the consumer. In time, this should serve to encourage increased spending
from the most high-value customers. We expect businesses to look to segment their customer
base and thereby reward customers with whom they interact more frequently.
 The next step in the customer relationship journey. In time, we expect the adoption of
technologies such as blockchain and tokenization to be the next step to allow for efficient
personalisation and deeper customer relationships. NFTs allow for the creation of ‘digital
twins’ to high-value physical products, the likes of which are already being used by some
luxury retailers. This then fosters exclusivity and allows for the sharing of provenance
details and simplifies customer support processes (e.g., repair and maintenance, lost and
stolen, authenticity, proof of ownership).
 Rewarding high value customers. We see the use of NFTs moving forward to loyalty
reward schemes, such as private sales events or exclusive merchandise for the most
valuable customers. For example, a retailer could program an NFT to grant or revoke
exclusive access to a lounge or restricted area of the store based on prior purchases or
brand engagement. This would then act as an incentive to buy more, helping retailers to
increase their share of the consumer’s wallet.
 Driving the growth of rental/resale. We think that the use of blockchain for seamless,
instantaneous transactions, without the requirement for human intervention, could make
rental processes safer, more efficient and cheaper. This, in turn, should help to support
the growth of the rental/resale market, thereby also helping consumers to be more
sustainable in future.
 Positives for the public health sector. In time, we expect the development of a connected
system with centralized patient information that is accessible by multiple healthcare
providers and patients alike. We anticipate that the expenditures will ultimately satisfied
by grocers, pharmacies, and others with an economic interest in the platform. This should
ultimately lead to consumer benefits such as personalized preferences, nutritionally
appropriate menus and digitally pre-populated, ready-to-order baskets available for click
and collect or home delivery.
By the same token

Bridging digital and physical realms with tokenization
Over time, wide scale adoption of emerging technologies like tokenization could become
In our vision of the future, integral to efficiently satisfying evolving individual and societal preferences.
programmable NFT
certificates could deepen From mass to me
brand–customer Over the next decade, it should become increasingly possible to satisfy individual preferences
relationships by unlocking through data generation & tracking, and the ensuing collective knowledge produced. And no
certain features to reward discussion about hyper-personalization would be complete without highlighting the emerging
consumers based on the role of NFTs—unique (as in irreplicable), blockchain-derived digital assets that marketers can
depth of interactions with use to bridge the physical and digital experience and deepen customer relationships.
the brand.
Forward-looking luxury retailers and fashion houses are already leveraging NFTs by creating
digital twins to high-value physical products to promote exclusivity, share provenance details,
serve as repository for repair or maintenance history, help declare the physical good lost or
stolen, and facilitate transfer by assuring authenticity and proof of ownership. NFTs create a
perpetual, non-replicable, transferable and programmable link to the customer.

In our vision of the future, programmable NFT certificates could deepen brand–customer
relationships by unlocking certain features to reward consumers based on the depth of
interactions with the brand. Examples include selectively unlocking access to private sales
events or exclusive merchandise for emerging high-value customers based on brand
interaction through their social media channels; or concert tickets augmented with a digital
backstage pass unlocked for certain individuals to incentivize and reward based on
engagement, prior concert attendance, album and merchandise purchases, and digital music
downloads.
Exhibit 27 - NFT-based digital passports deepen brand–customer relationships, and can serve as proof of ownership and
authenticity
Source: Arianee
We envision a future where consumers leverage NFTs for status and self-expression in virtual
ecosystems—for instance, purchasing one of a kind, personalized luxury sneakers and owning
the digital twin online. NFTs would provide digital proof of ownership and authenticity of a
unique physical product, enable transactions, and could program a royalty stream remitted to
both the retailer and original-owner every time the asset is transacted. Scarcity and
authenticity beget value. In our view, NFT-based digital assets are poised to become the pillar
of one-to-one relationships between brands and creators and their communities of fans and
customers.

Insurance: Just for you

Insurance has always been about matching premiums to expected risk. Technology gives
companies new ways to evaluate and price risk and, accordingly, new ways to customize
coverage to address individual needs. Anything that can be measured becomes a vector for
repackaging insurance risk. This can include anything from human behaviors and geospatial
characteristics to time compression and the human genome. While customized risk
assessment can be a boon for “good” risks, it has a dark side too as some risks that are
Technology gives currently socialized become either more expensive to insure or are simply deemed
companies new ways to uninsurable.
evaluate and price risk and,
accordingly, new ways to Tailored coverages: We have already seen a number of tailored type coverages offered across
customize coverage. the insurance industry as companies look to attract and entice customers with coverages that
are appealing and the right fit for them. Increasingly, consumers and businesses are looking to
The bottom line is a buy plans and other related coverage items on an ad-hoc basis and buyers want more say on
customized product can be everything they buy (including insurance coverage) and don’t want to necessarily buy one-size-
marketed as a way to give fits all items.
customers more of what
they want (and less of what In the future, we think customers will want even more choice on the types of insurance
they don’t want) while coverage that they buy. These can include coverage amounts, deductibles, limits, policy length,
saving them money in the etc. We see no end in sight to the significant capital levels flowing into the insurance sector to
process. fund Insurtech start-ups (many of whom offer tailored coverage) while incumbent carriers
continue to adapt and do whatever is necessary to offer choice and keep customers satisfied.
The bottom line is a customized product can be marketed as a way to give people more of
what they want (and less of what they don’t want) while saving them money in the process.
Exhibit 28 - Summary of customized coverage
- Cus tomizable policies with more options is the future

- Pay by the mile and telematics have room to expand in the years ahead
- Companies will offer more on-demand ins urance via direct & phone
- We expect increas ed innovation & creativity in the ins urance buying proces s
- Effective us e of data & analytics , AI, and predictive modeling will be key to profitability
Source: RBC Capital Markets Research
Pay by the mile & telematics: Personal auto coverage is already highly customized and only
getting more so. Pay by the mile or usage based pricing is now starting to catch on and makes
sense for some customers particularly for city drivers or those that don’t drive much.
Telematics are also becoming an increasingly important variable and allows insurers to
monitor driving behavior for the insured (either through a device or smartphone) for a certain
period of time. The use of telematics enables companies to better assess individual drivers and
price risk accordingly. Allied Market Research estimated that telematics was a $2.37B market
in 2020 and they forecast this to reach $13.78B by 2030 (nearly a 20% CAGR).
While companies are quick to highlight how much good drivers can save, it also helps the
companies identify less attractive drivers that they can quickly price out of their book of
business.
Most major companies (Allstate, Progressive, GEICO) have offered telematics for a while but
we think all companies will need to have a telematics option especially as some state
regulators crack down on banning the usage of variables like credit scores in setting rates. We

also think that homeowners coverages could be tailored more in the future with insurers
asking more questions and taking a harder look at each homeowners risk on a more case-by-
case basis. We think things like Ring doorbells, home monitoring, and other preventative
emerging technologies will be encouraged and rewarded by homeowners’ insurers.
Exhibit 29 - Telematics basic description
They fit a clever little device into The device measures how well
1 your car 2 you drive
3 View feedback on how you’re

driving
4 Good drivers could save money
on their car insurance
Source: Confused.com
On-demand insurance: We think consumers will expect to have their say on what items are
insured individually and what is blanket covered. One-off coverage on certain items such as
insuring laptops, smartphones, or events or trips is already coverage that can be uniquely
obtained and priced down to increasingly shorter periods. Companies such as Trov and Slice
Utilizing tracking chips, the do this now, and more will likely do this in the future.
Internet of Things and
wearables, we imagine the Utilizing tracking chips, the Internet of Things and wearables, we imagine the possibility of
possibility of point-in-time obtaining point-in-time coverage on literally any item or situation to the extent that a
coverage on literally any customer is willing to pay a premium and there are tools to measure risk.
item or situation to the
extent that a customer is Workers in the gig economy are now using on-demand insurance and we think that usage should
willing to pay a premium grow materially in the years ahead. The best examples now are Uber and Lyft drivers where auto
and there are tools to coverage is activated when they sign on to the app and deactivated when they sign off.
measure risk.
This type of coverage can be extended to a range of entrepreneurs running various types of
businesses that need coverage some identifiable unit of time. To the extent tracking is allowed
certain risks such as workers comp could be extended to the individual level charging more
when a worker is engaged in physical acts and less when they are sedentary.
Customers want coverage in real time (at the click of a button) and are now looking to buy
coverage at their fingertips without having to fill out large forms – and we think that will
happen. We believe that the days of long-term commitments or contracts to buy coverage are
over. That said, we think that insurers will still need to be careful to make sure that they know
who is buying, that fraudulent behavior can be detected, and the product is priced
We think that carriers
should be able to offer and appropriately.
price these new customized
Data and analytics should help with profitability: We think that carriers should be able to
products more efficiently in
offer and price these newer products more efficiently in the future based on better use of data
the future based on better
and analytics. We expect companies to make further advances on adopting things like artificial
use of data and analytics.
intelligence, Blockchain, robotics, data and analytics, and predictive modeling to appropriately
assess risk and price different product lines. We expect companies to make further
investments in data and analytics and big data as this is no longer a nice thing to have but
because it is necessary to survive and thrive in the years ahead.
Beside risk assessment, companies are using technology and AI for loss prevention and
mitigation. Cameras, sensors, sprinkler system, and the Internet of Things can help detect
losses early on and have loss mitigation measures. Big data and AI can also help tally and
predict what areas or product lines are most prone to claims, and employ loss-mitigation
techniques for those risks.
Worker’s compensation & trackable monitoring: We think that the way that workers’
compensation is priced now could change and give more recognition to the industry being
We expect increasing use of served and risks involved. For example, a worker at a construction or job site has a much
wearable tracking devices greater probability of being hurt at work compared to a worker sitting at their desk.
in the future, enhancing the
ability to evaluate risk, Wearable devices could identify when workers are on a jobsite and in dangerous areas as
thereby enabling more compared to safe areas and when they are involved in activities that give rise to losses rather
tailored worker’s than engaged in low risk activities. Premiums could then be tuned to specific employees rather
compensation premiums. than generalized based on payroll and job code.
AIG noted a few years ago their use of wearables for construction workers to track their
movements and have a better handle on the perceived risks. While not popular with workers,
we expect the use of trackable technology to be further utilized in the years ahead. Below is a
table predicting that the wearable tracking device market will hit $80B by 2024 vs. just over
$40B in 2020.
Exhibit 30 - Wearable tracking devices market is expected to show growth ($B)

Wearable Tracking Devices Market
90
80
70
Revenue in billion USD
60
50
40
30
20
10
0
2015 2017 2019 2024
Years
Source: profsharemarketresearch.com
DNA or genetic testing: Life insurers are looking at utilizing biology and medical science to
apply genetic testing and genome mapping. A PartnerRe report examines three types of
genetic testing that are in three different stages of development and implementation. The first
type is single gene analysis, which is the most accurate and usable method of existing testing.
It tests single genes to find specific results related to a single outcome (Huntington’s,
Alzheimer’s, etc.). The tests are typically reimbursed by healthcare insurers and have prices in

the $100s. The adverse selection risk is currently low because these tests are designed for rare
diseases with 1%–2% population exposures.
Exhibit 31 - Genetic testing maps
Genetic test Description Quality Main providers and owners Approximate Risk of adverse selection
of the date cost of a text
Single gene Identified mutations in a High Specialized healthcare USD 100 Now: Low, as single gene diseases on
analysis single gene responsible for a providers average affect approx. 1.2% of population
particular disease (single gene Medium term: Low
diseases)
Whole Analysis of the entire human High Now moving from the USD 1,000 Now: Low, data processing requirements to
genome genome and genetic variates potential research sector to hospitals within the next incorporate patient’s medical history and
sequencing associated with diseases and clinics, primary to few years clinical symptons not yet avalable.
analyze and better garget Medium term: High, processing capabilities
treatments for cancers rapidly advancing
Direct-to Investigates a small Low Private companies; no USD 200 Now: Low
consumer proportion of the genome, i.e. healthcare professionals Medium term: Medium, accuracy of tests
genetic tests SNPs suspected to be need be involved will improve
associated with diseases
Table 1: Summary of the three main tyes of genetic testing and their impact (adverse selection risk) on Life and Health insurance. The ‘low’ and ‘high’
categories are presented as a simplifcation and for comparison purposes only.
Source: PartnerRe
Whole genome sequencing is the second testing methodology available. It involves, as the
name suggests, the mapping of the entire human genome. It is more expensive, and less
developed, but is moving from the lab to hospitals in the testing for cancer and other diseases.
As of now, this poses a small risk to life insurers from an adverse selection standpoint but in
the longer view could be a high risk as these tests become more accurate for diseases that are
more common than those tested by simple gene analysis and to the extent pricing comes
down.
Finally, there is direct to consumer genetic testing. These tests have low accuracy and involve
no medical professionals and pose little risk to insurers on a near-term basis. As the tests
develop and become more accurate, they could pose a higher risk, but the lack of medical
We see genetic testing as a professionals’ involvement would limit the ability of a customer to form an information edge
key opportunity for insurers on the insurers.
that can allow for more
accurate risk profiling; We see genetic testing as a key opportunity for insurers that can allow for more accurate risk
ultimately, what DNA or profiling of potential customers and improved profitability. Ultimately, what DNA or genetic
genetic testing will be testing will be allowed from a regulatory perspective is still unclear, and could depend on the
allowed from a regulatory states or countries involved.
perspective is still unclear.
How we buy insurance? The way that customers buy on-demand insurance is likely to
continue to evolve with some consumers now more comfortable buying on a “direct” no-
contact basis either online or via a smartphone. The NAIC recently noted that millennials are
twice as likely to purchase their policies online or through a smartphone (rather than an agent)
and we expect future generations could be even higher. In the case of life insurance,
consumers have been lobbying for easier ways to buy life insurance coverage without having
to take blood tests, provide samples, or fill out time-consuming applications and that is starting
to come to fruition.
We expect the use of chatbots to become more common as the next generation of younger
buyers prefers this option, especially for straightforward transactions. At the same time, we
anticipate that companies will still offer the ability to interact with agents to run through
certain topics and subject matters. We expect increased innovation and creativity in the
insurance buying process as money continues to flow into the Insurtech space and incumbent
companies spend on innovation.
The ethics of individual insurance

Insurance works on the principal of socializing common risks. The more we can measure about
risk the less need there is for risk sharing and the more accurate premiums can be matched to
loss expectations. Effectively, we stop relying on actuarial tables and the law of large numbers
and start relying on algorithms and loss prediction.
Moral hazard is an insurance concept that suggests the risk taker (policyholder) knows more
about their propensity for loss than the insured does and will avoid insurers who fully price for
risk and instead adversely select against insurers who do not fully appreciate their risk profile.
The good news for insurers is that information helps level the playing field. The bad news for
policyholders is that they may be less able or unable to find coverage at an affordable price.
Take for example an auto owner in a high-crime neighborhood. This person’s driving skill may
be just as good or even better than a similar driver in a low-crime area, but they may still pay
more because their auto may be more at risk for theft, vandalism or uninsured motorist risk.
None of these are factors inherent to the operator but are factors in the overall loss profile. A
fully customized risk needs to weigh both the positive factors (being a good driver) and the
negative factors (living in a high-crime area).
Full customization of Likewise, while genetic testing and genome mapping could be useful for life insurers, should
insurance will inevitably they be able to use this? We think this creates somewhat of a moral dilemma, has privacy
help some buyers and harm issues, and can cause selection issues. Said differently, those with the “right” genes might
others, perhaps leading to a easily obtain low-cost coverage while those with the “wrong” genome might pay a much
more bifurcated distribution higher rate or be denied altogether.
of premiums.
For example, it is already the case that life insurance companies differentiate between men
As a society, we will need to and women based on observed differences in longevity. Genetic testing might exacerbate
weigh all the risk factors of some of these differences. There could be racial or ethnic segmentation as well based not just
offering customized on already observable social factors but potentially genetic differences as well.
insurance, and determine
whether they are worth it. Full customization of insurance, whatever the product, will inevitably help some buyers and
harm others, perhaps leading to a more bifurcated distribution of premiums whereas broader
risk sharing (as is currently the case) tends to allow more policyholders to pay near the
average. As a society, we will need to weigh all the risk factors that go into offering customized
insurance and determine whether they are worth it.

Media & Telecom: Personalized content

The rise of personalized platforms
In our 2002 report “Scaling Interactivity” we developed a digital content aggregation thesis
where, in an interactive digital environment, we proposed that: (1) traditional media platforms
would evolve from proprietary content platforms to multimedia content platforms; (2) with
interactivity, these multimedia content platforms would then evolve into content neutral
platforms; and (3) with personalization, these content neutral platforms would then evolve
into personalized platforms (bottom of Exhibit 32). Almost 20 years later, we believe our digital
A potential mid-2020s content aggregation thesis has stood the test of time with the traditional media platforms
content inflection period evolving into multimedia platforms through the 2000s, the large, concentrated consumer
could accelerate the platforms (Google, Facebook, Amazon, Apple, Netflix) emerging as the dominant content
emergence of personalized neutral platforms through the 2010s, and with these content neutral platforms (among others)
platforms, which we believe now racing to develop personalized platforms.
will be capable of delivering In our June 2018 RBC Telecom Scenario Report entitled “Intelligent Reality and the Inflection
exponentially greater Period for Content,” we identified a potential mid-2020s content inflection period that could
personal “presence” and accelerate the emergence of personalized platforms. With VR/AR/MR and AI underpinned by
“relevance” at scale.
an increasingly powerful technology stack, we believe these platforms will be capable of
delivering exponentially greater personal “presence” and “relevance” at scale, resulting in the
mediation of both reality and intelligence (middle of Exhibit 32).
Exhibit 32 - The rise of personalized platforms
Intelligent Reality
Mediation of Consciousness
(extension of existence) Future Content Continuum
Mediation of Information, Mediation of Information,

Entertainment, Communication Rich Virtual Reality / Mediation of Reality Mediation of Intelligence Artifical Intelligence/ Smart Entertainment, Communication
(extension of knowledge, Content Augmented Reality (extension of experience) (extension of interaction) Machine Learning Content (extension of knowledge,
amusement, connection) amusement, connection)
New content dimensions New content dimensions New content dimensions New content dimensions New content dimensions
Multimedia Time, Space Disembodiment Interactivity Multimedia
(Text, Audio, Images, Video) (Text, Audio, Images, Video)
Elimination of Distribution Elimination of Information, Elimination of Mediated Elimination of Elimination of Distribution

Channel - Content Dimension Entertainment, Communication and Non-Mediated Push and Pull Channel - Content Dimension
Distinction Distinction Distinction Distinction Distinction
First Stage Third Stage Fourth Stage Second Stage First Stage
Content Convergence Content Convergence Content Convergence Content Convergence Content Convergence
Personalized Platforms
Content Neutral Platforms Content Neutral Platforms
Multimedia Platforms Multimedia Platforms
Proprietary Platforms Proprietary Platforms
Sources: RBC Capital Markets report “Intelligent Reality and the Inflection Period for Content”
The rise of the “data-industrial complex”

In our view, one of the key (if not most important) components of the value chains
underpinning personalized platforms will be the ‘data-industrial complex’ – a reference by
Apple CEO Tim Cook for today’s consumer data ecosystem. Under the first iteration of the
Internet over the past 20 years, consumers have largely voluntarily entered into what are
effectively barter arrangements with the large, concentrated consumer platforms (“walled
gardens”) as well as websites and apps (the “open Internet”) exchanging consumer
information for some form of network access and/or online service. These barter
arrangements, catalyzed by third-party data providers and third-party cookies have enabled
both walled gardens and the open Internet at virtually zero cost of sales to monetize consumer
information with advertisers. Not surprisingly, with only minor regulatory oversight, powerful
“winner take all” network effects, active horizontal integration, and limited consumer data
ownership rights, portability and protections have emerged: (1) walled gardens have not only
grown in size and influence, but have become exceptionally profitable and highly valued while
enjoying rising barriers to entry; and at the same time (2) the open Internet continues to
Under the second iteration
steadily encroach on consumer privacy.
of the Internet (the
“Metaverse”), we expect Under the second iteration of the Internet (often referred to as the “Metaverse”), we expect
the data-industrial complex the data-industrial complex to take its first real leap forward with significantly greater
to take its first real leap consumer data ownership, portability and protections. While the General Data Protection
forward with significantly Regulation (GDPR), the California Consumer Privacy Act (CCPA) and Google and Apple’s
greater consumer data discontinuation of third-party cookies in the Chrome browser, along with related changes by
ownership, portability and Apple are collectively a step forward in giving consumers more transparency, choice and
protections. control, we believe this regulation only scratches the surface of what will be required of this
complex to support personalized platforms. More broadly, a more highly evolved data-
We believe that an industrial complex with sophisticated consumer data ownership, fungible portability and
advanced data-industrial enterprise-grade protections would exponentially expand the pool of anonymously and non-
complex represents the anonymously aggregated consumer information – the impact of which would be nothing short
single greatest of transformative and akin to what the banking industry, by facilitating the flow of capital, did
“infrastructure” opportunity for capitalism, market efficiency and the global economy. In fact, we believe that an advanced
over the next half century. data-industrial complex represents the single greatest “infrastructure” opportunity over the
next half century with wide-ranging economic, social, cultural, political, environmental and
national security implications.
In our view, an advanced data-industrial complex could:
 Unleash an unprecedented step-up in market efficiency across all sectors of the economy
driven by superior information exchange;
 Impact all elements of public policy resulting in vast improvements, for example in
healthcare (unprecedented sharing of medical records), education (unprecedented
immersive and specialized learning environments) and government administration;
 Provide the necessary consumer privacy and security safeguards for powerful AI and VR-
driven personalized platforms;
 Be a massive consumer data resource for private and public sector AI initiatives;
 Be the common data depository for public 5G-drive IoT use cases across smart cities,
connected cars and other public infrastructure;
 Incorporate blockchain technology within a consumer-owned, digital locker construct as
one mechanism to protect against unauthorized access and use of personal information;
 Institutionalize consumer information as a fully tradeable asset class with established fair
market value mechanisms, enabling consumers to generate actual cash returns on their
information (establishing the “time value of information”);
 With an ability to generate cash returns, be a contributor to any universal basic income
(UBI) program; and
 Become a more objective arbiter in establishing a “common set of facts” required to
sustain healthier political discourse in a democracy.

Consumer: Power to the people

Since the emergence of the retail shop as we know it, power has largely been in the hands of
the brands and the retailers: retailers chose the products and brands to stock in their shops,
and consumer choice was limited to those products and brands. With the emergence of
ecommerce, products and brands are now free to interact directly with their consumers,
without the friction and limitations that ensue when the retailer acts as intermediary.
We expect the reams of
consumer data being Although much of retail remains mass-oriented and relatively undifferentiated, the reams of
accumulated through customer data that is being accumulated through online browsing and shopping and retailer
ecommerce and retailer loyalty programs will be the cornerstone for a new era in retail: the Personalization Period,
loyalty programs will be the powered by mass customization.
cornerstone for a new era in
retail: the Personalization As it stands today, personalization is the attempt to provide shoppers with unique experiences
Period, powered by mass across all interactions and channels, using data accumulated during previous interactions,
customization. updated and iterated in real time. The objective: to provide anticipatory and proactive
interactions that stimulate demand, deepen loyalty and drive revenues.
The simplest iteration would be the customization of an online customer interface to reflect
historical customer purchasing patterns and onsite behavior, adapted to seasonal shifts based
on input from weather data in the customer’s region, and augmented by a virtual styling
assistant for high-value customers. So, when Customer A, living in Montreal, logs into her
personalized shopping portal on a blustery day in November, the welcoming image is of the
customer wearing a yellow (her favorite color) rain slicker with jeans, blue and white striped
(she likes to pair these two together) sweater and rain boots, all in her size, all available at the
click of a mouse, and delivered to her home via drone within two hours.
Elements of this type of highly adaptive/proactive approach are already available, Nike
introduced early elements of mass customization in 1999 with NikeID, and both Dr. Scholl’s
and adidas offer customized shoe inserts. Luxury brands from Louis Vuitton to Baume offer
buyers the option of customization across a range of options, but these are all consumer-
initiated, and lack the proactive, anticipatory, quickly available element that will one day typify
the shopping experience.
Advantages to the retailer or brand include heightened loyalty, as customers value the unique
goods/services being offered; reduced waste, as unpopular items are simply not produced
(turns out Customer A really likes yellow, but not in a rain slicker); and often, higher revenues,
as studies have found that more than half of consumers are willing to pay a premium for
products customized to their individual taste/style.
From me to the masses

Optimizing resources & improving societal outcomes through the creation of a truly circular
customer relationship. The combination of emerging technologies should enable broad-based
monetization of customer assets, whether digital, material or physical.
Digital: Monetizing your own data or bandwidth. The “monetization of self” through data
control and sharing with selected entities, whether private or governmental could
meaningfully disrupt incumbents in the advertising space. It is also conducive to the
proliferation of businesses such as Filecoin, which encourages data storage/sharing through
tokenized incentivizes (Filecoins).
Material: Making optimal & efficient use of existing resources while satisfying the
“ownership vs. service” dilemma or preference by attracting products from the sidelines.

The advent of technologies such as tokenization and innovative payment solutions could
enable practically “anything-as-a-service” by benefitting both owners and renters, and in some
cases society at large. Traditionally, ownership appeal has centered primarily on lower total
cost of ownership (TCO) that improves with asset utilization, but sourcing convenience,
product availability, and seamless transaction / authentication / payment remain critical to
maximizing the collective asset base. As new technologies mature and as models of asset rights
evolve, in our view, myriad use cases exist to leverage NFT programmability, proof of
authenticity and transferability.
How it might look? A retailer could program an NFT to grant or revoke exclusive access to a
lounge or restricted area of the store based on prior purchases or brand engagement—a token
that could be transferable for a fee and thus have value. NFT certificates could also be used to
unlock doors. A homeowner or car owner in a remote location could transfer their unique NFT-
enabled certificate through a smartphone app, granting another person access to the
connected physical asset. Customers could have self-sovereign IDs stored in a public
blockchain, allowing for seamless transactions, instantaneously, without any need for human
intervention, with payments approved and processed through smart-contracts also running
on blockchain. This would render the process of renting out assets much more safe and
efficient, for the benefit of all involved, with less hassle and lower TCO for owners, more
products available for renters at a lower cost, and improved outcomes for the planet on a more
robust/fulsome utilization of existing resources.
Taking the individual rental example a step further, mass adoption of tokenization-based car
renting combined with “vehicle-to-grid” or “vehicle-to-building” (V2G/VBI) technology
integrated with battery-powered electric vehicles could have a significant impact on society.
Combining emerging software and AI capabilities with what is essentially a distributed energy
storage solution in the rapidly growing BEV car fleet, could drive vastly improved societal
outcomes from the tokenization and subsequent monetization of hard assets. While not in
use, benefits would accrue to asset owners by providing grid services in exchange for a
monetary (potentially tokenized) incentive lowering the car’s TCO, while benefiting society at
large by powering & regulating/stabilizing the grid, or a specific building for that matter.
Physical: Building on the earlier telemedicine and public health monitoring discussion, it
seems inevitable that we are heading towards a “connected healthcare & wellness”
ecosystem, with the individual at the center of it all. In time, we should witness the creation
of a connected system with centralized patient information (medical records, genetic tests,
We envision a future in biomarkers…) accessible by multiple healthcare providers (doctors, pharmacists, dieticians,
which patients willing to physical trainers…) and patients alike, with related expenditures ultimately satisfied by
self-disclose could benefit grocers, pharmacies, and others with an economic interest in the platform.
from a range of
nutritionally appropriate In addition to receiving valuable health and lifestyle recommendations from physicians and
menus to suit individual other stakeholders, individuals could also reap tokenized government-subsidized rewards
palates, preferences and based on voluntary disclosure of medical records on the public blockchain, healthy food
medical requirements. purchases, activity levels tracked by wearable devices, and improvements in biomarkers. All of
this assuming that we can get to a place where accurate determination and fair distribution of
tokens can be satisfied. But at the very least, we envision a future in which patients willing to
self-disclose could benefit from a range of nutritionally appropriate menus to suit individual
palates, preferences and medical requirements, with digitally pre-populated, ready-to-order
baskets available for store pickup, home delivery (likely via drone) or any other convenient
last-mile solution.

Internet: Gig economy

Bucking traditional lifestyles, employment
The days of lifetime employment with a single company that provides a pension and
retirement health insurance are long gone for most workers, and many will cycle through more
than a dozen jobs in their working years, either by desire or necessity. Much of this change in
recent decades has been driven by corporate efficiency initiatives, global competition, and
changing regulations. However, in the last decade, the shift has also been pushed more
aggressively by workers demanding more control over their careers – the work they are doing,
when they do that work, and the environment in which they work.
The onset of the COVID-19 pandemic that drove a mass and sudden shift to working from
The days of lifetime home has also shocked the labor force. This more recent labor-driven change has spurred
employment with a single growth of the “gig” economy, or a labor market that is distinguished by the prevalence of
company that provides a short-term contracts or freelance work rather than permanent jobs.” Much of the recent
pension and retirement media coverage of the gig economy has focused on the millennial generation and their desire
health insurance are long for more work flexibility, as well as the “sharing economy,” through digital platforms like Uber,
gone for most workers. Task Rabbit, and Airbnb. Both are meaningful drivers, and the sharing economy is indeed
growing rapidly. However, we believe that a broader definition including temporary workers,
on-call workers, contract labor, freelancers, and independent contractors more fully describes
the sub-set of alternative or independent workers (i.e., those doing project or task-based work
and without a long-term relationship with an employer).
According to a December 2016 paper in the National Bureau of Economic Research, alternative
workers comprised 15.8% of the U.S. employee base as of 2015, up from 10.7% in 2005. This
is an acceleration from the more modest shift towards independent workers in the prior
decade. It is also interesting to note that the increasing penetration occurred across all income
levels, though by a lesser rate at the lowest income tier.
The appeal of a traditional 9 to 5 long-term job with a single employer has diminished. For
many, this may be rooted in the disappointment and disillusionment workers experienced
during the 2001 and 2008 recessions (and for younger workers, the experience of their
parents). Why should an employee stay devoted to one job/one boss if there is no reciprocity?
Exhibit 33 - Alternative work arrangements on the rise across income levels
Workers in an alternative work arrangement

1995 2005 2015
20%
15%
10%
5%
0
1 2 3 4 5
Quintile of predicted hourly wages
Source: National Bureau of Economic Research article, “Putting Price Tags on Alternative Work Arrangements” (December 2016)

Another facilitator of the growing trend towards alternative work arrangements is the growth
of the sharing economy and in particular digital platforms that act as efficient marketplaces to
connect workers with consumers or companies looking to acquire their services. This includes
a wide range of businesses like Uber (ride hiring), Upwork (a professional freelancer
marketplace), TaskRabbit (a lower skill freelancer marketplace), and Airbnb (accommodation
rentals). These and many other digital marketplaces harness technology and provide an
efficient way for independent workers to connect with those needing their services. The
McKinsey report, Independent Work: Choice, Necessity, and the Gig Economy from October
2016, estimates that 15% of independent workers use these digital marketplaces today.
Generalizing broadly, the millennial generation in particular is seen as demanding more

flexibility and work–life balance, having more desire to understand the motivations of their
employer and to be contributing to an organization that is doing good, in addition to just
driving profits. However, rising distrust of large organizations appears to be felt across
generations, which we believe is leading to the growing desire to “be one’s own boss” and
have more control over what work is done, what projects are chosen, and where and when
We see a growing desire work is performed. Exhibit 34 illustrates the appeal to U.S. workers of non-traditional
across generations to “be arrangements, with 58% and 82% of survey respondents willing to give up $1/hour of
one’s own boss” and have compensation to work from home and avoid employers setting their hours, respectively.
more control over what
Exhibit 34 - Survey data shows that U.S. workers value characteristics of independent work
work is done, what projects
are chosen, and where and
when work is performed.
Source: National Bureau of Economic Research, “The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015” (December 2016)

Internet: “Marketplace theory”

Digital marketplaces – disruption unlikely to go unnoticed
Among our most bullish views for value creation over the much longer term, we often speak
about the emergence of digital marketplaces across almost any vertical that could benefit from
additional marketplace liquidity (which is essentially every end-market, marketplace, etc.).
With that said, one of the key, long-term friction points we are monitoring is our view that
digital marketplaces, in some cases, will likely invite greater-than-average regulatory scrutiny
for two primary reasons:
They tend, in many cases, to capture value from long-standing, legacy industries, which
often perceive that value capture as unjust or even something approaching nefarious; and
Due to the inherent network effects that accompany any growing digital marketplace,
market share tends to become more concentrated than legacy industries, which allows
the marketplaces to extract disproportionate economics that in some cases, can challenge
the underlying sustainability of the end-market’s business model or even existence.
As such, over the next decade, we believe that certain digital marketplaces could be indicted
We believe that certain in the court of public opinion as accelerating the widening wealth gap akin to the historical
digital marketplaces could bourgeoisie/proletariat socio-economic class divergence and a continuation of the same, well-
be indicted in the court of known modern trend that has been visible for decades. As such, we believe regulators will
public opinion as likely take ongoing issue with and seek policy that aims to address the blurring of a socio-
accelerating the widening economic lines of demarcation between those that make their living from digital marketplaces
wealth gap and that and those that do not. Given the extraordinary value creation of these marketplaces since the
regulators will likely take emergence of the smartphone in 2007, and the relative marginalization of end-market
ongoing issue with and seek earnings power as a result of this emergence, we believe this friction is only likely to increase
policy that aims to address over time.
the blurring of a
socioeconomic lines. In terms of how to assess the dynamic risks laid out above in our coverage universe, we believe
the key determinant is where end-markets fall in the staples vs discretionary spectrum. The
more vital an end-market is to basic society, the more likely digital marketplace’s
disproportionate value capture is unlikely to be tolerated by regulators, in our view, whereas
for other discretionary areas, we’d see regulator intervention as less likely.
Exhibit 35 - We believe marketplace regulation will likely focus on Staples/Utilities/Public

Goods
Source: Company reports, U.S. Census Bureau, UStravel.org, RBC Capital Markets estimates

Healthcare services: The rise of the U.S. healthcare consumer

Historically, individuals have been able to consume healthcare with little regard for the cost
since the vast majority was covered/paid for by their insurer. Beyond the premium, individuals
rarely ever had to pay anything out of their own pockets, so have never had any incentive to
ration or “shop” for services. This has resulted in a system where patients consume healthcare
without any economic constraint. Another unintended consequence of this includes a market
that now marginalizes the consumer, since they have never really had any individual control
over healthcare purchasing decisions.
Notably though, change is underway here as well – we are seeing more evidence that an
increasingly empowered and incentivized consumer is beginning to emerge.
Exhibit 36 - Individual OOP spending on deductibles has increased nearly 6x since 2003
$900
Average OOP spending by
$800 individuals on deductibles has
increased nearly 6x since 2003
$700
235
232
Average Annual Out-of-Pocket Spending
237
225
As employers have wrestled $600
219
206
with rapidly inflating
188
167
$500
healthcare costs, they are
148
152
148
150
141
135
passing an increasing share

122
164
$400
181
108
of the cost on to their
193
92
214
employees in the form of
227
89
$300
242
higher premiums,
230
228
227
225
397
deductibles and
383
$200
215
356
190
324
285
coinsurance.
249
212
189
$100
147
130
130
120
93
As a result, there is an
77
69
$0
increasing emphasis on 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
empowering patients and
Deductible Copay Coinsurance
making them more active
participants in achieving Source: Kaiser Family Foundation and RBC Capital Markets
their own health goals.

Two forces are propelling change
There two forces that are propelling this consumerization/”retailization”: (1) as employers
have wrestled with rapidly inflating healthcare costs, they are passing an increasing share of
the cost on to their employees in the form of higher premiums, deductibles and coinsurance.
This is helping fuel a “consumerization” of healthcare as individuals are increasingly
responsible for the “first dollars” of their care via the higher deductibles—individuals now have
more of a vested interest in seeking lower cost options. Along these same lines, it is also driving
a “retailization” of healthcare, as a variety of cheaper and more convenient healthcare sites
and services are popping up to meet this new consumer demand. And (2) there is an increasing
emphasis on empowering patients and making them more active participants in achieving
their own health goals. Many of the new payment models discussed above are recognizing and
emphasizing the benefits of placing patients at the “center” of their own care plans.

Exhibit 37 - Cumulative growth in healthcare spending for families with employer coverage
80%
73%
Cumulative Growth in Premium and OOP Spending

70% 67%
56%
60%
53%
50% 51%
50%
42% 41%
40% 37%
35%
32%
29%
30% 27%
25%
21% 21%
20% 20% 26%
22%
20%
8% 17%
10% 6% 14%
5% 12%
0% 10%
3% 4% 8%
0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Worker Share (OOP and Premium) Employer Share (Premium) Workers' Wages
Source: Kaiser Family Foundation and RBC Capital Markets
More specifically, an increasing effort is being made to engage individuals in a manner that
matches their needs, capacities and preferences. These strategies range from providing
incentives to individuals who better manage their chronic diseases or choose high-value
providers, to giving patients access to data and tools that enable them to better understand
their conditions and treatment options (including the benefits, risks and costs of each).
Exhibit 38 - Proportion of individuals enrolled in a HDHP continues to grow
35%
30%
7%
7%
25%
9% 9% 10%
20% 9%
7%
15% 8% 9%
8%
23% 24%
10% 7% 19% 19% 19%
3% 14% 15%
5% 3% 12% 11%
3% 9%
2% 6% 6%
3% 4%
0% 2%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Employees Enrolled HSA-Qualified HDHP Employees Enrolled HDHP/HRA
We expect these consumer forces to strengthen over the coming years as: (1) the number of
individuals covered under alternative payment models (APMs) increases; and (2) the
proportion of individuals enrolled in high-deductible health plans (HDHP) continues to grow.

Exhibit 39 - Elements of an Effective Patient Engagement solution
Schedule
Patient
View/Share Appointments
Financial
Clinician Notes
Responsibility
from Visits
Estimator
Billing Error Cost

Corrections Transparency
Text Message –
Securely
Reminders,
Message Patient Confirmations,
Provider
Payments
Request Rx
Make Payments
Refills
Integrate
Connect to Remote
View Test
Educational and Monitoring
Results
Community Data
Resources
Source: U.S. Department of Health & Human Services and RBC Capital Markets
New capabilities needed to better serve customers

With the newly empowered consumer increasingly sitting at the center of healthcare
purchasing decisions and care plans, individuals, payors and providers will all require new tools
and capabilities to manage effectively in the new paradigm.
 Individuals will need solutions to help understand both the cost and quality of available
treatment options, as well as tools to better manage benefits (including health savings
accounts) and technologies to better manage their own health (i.e., monitoring devices,
medication management, and educational material and wellness information).
 Providers will need tools to make their practices more consumer-friendly, including
solutions that help patients more easily communicate with their care team, schedule
appointments, transparently understand costs and make payments, and deliver relevant
educational material to patients to help more effectively engage them in their own
treatment plan. Providers will also benefit from tools that help them better monitor and
engage their patients from afar.
 Payors will need tools to help members better understand and manage their benefits,
make more-informed cost decisions and deliver pertinent educational material.

Power: The rise of resilient prosumers

The significant reduction in solar PV costs and technological improvements have resulted in
PV installations (and battery storage systems in some cases) in numerous homes and buildings.
As a result, the traditional consumer has transitioned into a producer as well. A producer and
A producer and consumer, consumer, or a "prosumer," can self-supply electricity (also known as distributed generation)
or a “prosumer,” can self- or sell it into the grid. Prosumers particularly at the commercial and industrial level can also
supply electricity or sell it provide demand response services (reduce energy usage) to the grid during peak periods. At
into the grid, such as those the residential level, it could simply be a home with rooftop solar PV panels. At the commercial
with rooftop solar panels or and industrial level, it could include a combination of rooftop solar PV panels (or another form
electric vehicles. of generation), a battery storage system, and a flexible load that could provide demand
response services. We also see electric vehicles (essentially battery storage on wheels)
potentially playing a large role in the grid as EV adoption rates increase.
Prosumers also benefit from improved energy resiliency. The increased frequency of power
outages in the U.S. has challenged conventional wisdom around centralized power. Over time,
we believe residential rooftop solar plus storage adoption will increase as homeowners desire
greater resiliency. While the early adopters of residential rooftop solar were homeowners with
excess disposable income interested in combatting climate change, as solar system costs have
declined, and various government incentives as well as various financing methods (loans, PPAs,
etc.) have expanded, adoption has increased among homeowners of different economic
classes. We see resiliency as one of the key factors driving the next leg of adoption as
homeowners become increasingly frustrated with power outages.
Number of prosumers set to accelerate

Retail and commercial prosumers have emerged over the past decade as the cost and
efficiency of rooftop solar (and battery storage) systems continue to improve. In our view,
there are a number of factors that support an acceleration in the growth of prosumers,
including continued cost improvements for solar and battery systems, increased demand for
electricity (electrification of heating and mobility), higher EV adoption, and a larger social focus
to decarbonize the grid. In the near term, we believe that elevated merchant power prices
over the next year further improves the economics of rooftop solar systems for prosumers.
With various tailwinds supporting the growth in prosumers, we expect prosumers to play a
larger role in the electrical grid with respect to supplying power and/or the provision of
demand response services. Providers of generation, metering and software applications (e.g.,
rooftop solar procurement companies) are well-positioned to benefit. With respect to
regulated utilities, we believe that the growth in prosumers can be a threat for utilities that
maintain a traditional role (generate and distribute), while offering opportunities for utilities
that are flexible and revise their business model to adapt to the changing environment.
North America
Prosumers have flourished in the U.S. as there is good penetration in the residential solar
rooftop segment, particularly in California. Homeowners are often able to produce power at a
levelized cost (after incentives and tax credits) that is lower than the local utility's residential
electricity rate, and the excess power generated during the day can be sold into the grid. The
arrangement enables prosumers to green their energy consumption, improve their electricity
security and reliability, and reduce overall electricity costs. Community solar has also grown in
popularity in the U.S. for residents who rent, live in multi-tenant buildings or have roofs that
do not support a solar system. Community solar refers to local solar facilities (typically ground-
mounted) that are shared by multiple subscribers who receive credit on their electricity bills
for their share of power produced. Currently, in the U.S., residential/community/commercial

solar facilities make up ~36% (39 GW) of the installed solar capacity, according to the Solar
Energy Industries Association (SEIA).
According to Wood Mackenzie’s Q2 2021 update, residential rooftop solar installations totaled
905 MW in 1Q21 (+11% Y/Y), which represented the largest ever first quarter installations. For
2021, Wood Mackenzie forecasts 19% year-over-year growth for residential solar. Wood
Mackenzie estimates that residential solar penetration will increase from ~4% currently to
~13% in 2030. We believe the penetration level to be achievable as we note that penetration
has reached ~32% in Hawaii and ~15% in California.
Europe
Prosumer numbers in Europe are fast increasing, but still from a low base. According to a
report from SolarPower Europe, 90% of Europe’s roof surfaces remain unused, but this is
expected to change with European rooftop solar capacity expected to grow from 90 GW at
present to 570 GW by 2030. SmartEn provided a prosumer map in 2020 with the current
situation and prospects for prosumers in the various European countries: Germany is at the
forefront of solar PV rooftop installations, but regulatory and technical barriers limit the
participation of aggregation. Great Britain offers one of the largest selections of prosumer
technologies in Europe and provides financial incentives together with allowing prosumers to
make the best use of their assets through aggregators. France has a strong penetration in
rooftop installations of over 5 GW in 2019 that according to the French NECP is going to
increase by 1.2 GW annually (0.9 GW of large rooftop and 0.3 GW of small and medium rooftop
capacity) up to 14.5 GW–19 GW in 2030. Nevertheless, interaction with the grid could be
improved, and there are barriers to monetize flexibility. Italy shows a significant development
of various technologies for consumers such as rooftop solar PV, which accounts for around
half of the solar PV installations in the country. Combined heat & power (CHP) for residential
customers and commercial areas and battery storage have started to show significant growth.
Spanish prosumers are starting to play a more important role in the energy transition after a
Solar installation costs have slow start due to the Sun tax, which has since been abolished, but further regulatory changes
decreased by ~70% over the are still required to enable the monetization of flexibility.
past 10 years, with
residential solar system Significant cost reductions drive rooftop solar adoption
costs declining by ~50%. According to SEIA and Wood Mackenzie, solar installation costs have decreased by ~70% over
the past 10 years, with residential solar system costs declining by ~50%. SEIA notes that in
4Q20, an average size residential solar system cost ~$20,000, pre-incentive, vs. $40,000 in
2010. On a per watt basis, according to SEIA and Wood Mackenzie, since 2014, residential
rooftop solar hardware costs have declined by ~37% (from $1.52/watt in 2014 to $0.96/watt
in 2020) and other costs (labor, permitting, customer acquisition, overhead, etc.) have
declined by ~12% (from $2.14/watt to $1.89/watt). While the pandemic-related shortages and
supply chain issues have driven price increases in certain materials, we believe the longer-term
trajectory will be continued cost reductions.
While battery costs may be high, we note on a dollar per kilowatt-hour basis, lithium ion
The appeals of becoming a battery costs have declined ~85% from 2010 through 2019 (from > $1,350/kWh to <
prosumer could include $350/kWh). Given likely further declines in solar PV and battery costs, and potential increases
lower electricity bills, of retail electricity bills, the case for an expansion in the number of prosumers is likely even
greater energy without Government financial support. The economic benefit of prosumers increases with a
independence and higher percentage of self-consumption. Residential prosumers with rooftop solar PV self-
reliability, and renewable consume only 30%, but this could increase up to 65–75% due to demand side response and
energy goals. batteries, and it could be 50%–80% for some industries. Other prosumer solutions such as
demand side response might be even more appealing in countries with a high take-up of smart
meters, as less investment is required to achieve the benefits. Lower electricity bills might be

one of the main appeals of becoming a prosumer, but greater energy independence and
reliability could be important factors to consider. If properly managed, this might contribute
to a reduced need for large transmission lines and support renewable goals.
Power outages drive demand for resiliency

Weather-related power outages in the U.S. have increased in frequency in the past decade.
According to Climate Central, in the U.S., weather-related power outages totaled 990 from
2010 through 2019, which is a 77% increase from the 558 weather-related power outages from
2000 through 2009. The Northeast saw a 159% increase in weather-related power outages
(+159% from 127 in 2000–2009 to 329 in 2010–2019).
Specific storms driving significant power outages include winter storm Uri, which according to
PowerOutage.us, left ~4.4 million homes without power for a period of days, and Hurricane
Isaias in August of 2020 that caused power outages at ~3.8 million locations across New Jersey,
New York, Connecticut and Pennsylvania. In addition, in California, utilities implemented
rolling blackouts to reduce wildfire risk during the heatwave in the summer of 2020 (to avoid
power lines from causing fires).
As the pandemic forced more individuals to work from home, we suspect individuals have
become more acutely aware of their power needs and less tolerant of power outages, even
short duration ones that can disrupt work. We have already seen increased adoption of
residential rooftop solar in states with less irradiation (New Jersey) and in states that do not
have net metering (Texas), which we attribute in part to resiliency demand. In addition, battery
attachment rates with residential solar systems continue to grow (Sunnova battery
attachment rate on origination was ~30% in 3Q21) as does backup power generator demand.
Technological improvements and public policy are supportive

Large-scale prosumers have been in place for many years, self-supplying electricity in some
energy intensive industries (e.g. pulp mills, mining, and aluminum smelting). However,
Technological technological improvements, particularly in solar PV, have made it possible for power
improvements such as the generation at a much smaller scale (e.g., residential rooftops). The evolution of smart meters,
evolution of smart meters, net metering, and software that can control and manage the energy consumption down to
net metering, and software individual appliances, have made it possible for consumers to be prosumers.
that can control and
Looking into the horizon, we believe other technologies that can play a significant role in the
manage energy
growth of prosumers include the adoption of electric vehicles (significant battery storage and
consumption have made
energy management potential for the grid), and improvements in hydrogen electrolizer and
prosumers possible.
hydrogen fuel cell technology (which could eventually increase the number of prosumers at
In the future, we believe the the commercial and industrial levels).
adoption of electric vehicles
Another key enabler of prosumers is policy and legislation. For example, supportive net
and improvements in
metering policies enable prosumers to sell excess power into the grid. In the U.S., federal
hydrogen electrolizer and
investment tax credits (ITCs) and some state-level incentives for solar systems subsidize a
fuel cell technology could
significant portion of the cost of renewable energy. Finally, a growing number of countries and
increase the number of
organizations have adopted carbon net zero targets for 2050 or sooner, which should increase
prosumers.
the adoption of renewable energy, including rooftop solar and batteries. California's building
code currently requires new construction homes to have solar PV systems, and the
requirements are under consideration in additional states and regions.
Utilizing idle EVs: V2G

The next time you go to your neighborhood electric vehicle (EV) dealership, you might be
buying more than just a car. Your new EV could hold more power than you need for more than
90% of the time and you might wonder what else it could be doing other than idling in the
garage. Excess power could be used to power homes, appliances, and even the electric grid.
When stationary, an EV battery is a small-scale energy storage system. In large numbers (think
a parking lot full of cars), EV batteries are a form of distributed energy storage resource.
Technology is a challenge but does not seem to be prohibitive; utilities have conducted pilot
When stationary, an EV projects that show that a fleet of electric buses can help manage grids while creating customer
battery is a small-scale savings. This begs the question: when can commercialization be achieved? We think that it is
energy storage system. In unlikely to occur in the first half of this decade as EV penetration remains low in the next
large numbers, EV batteries several years; we expect the focus for energy storage resources will in stand-alone in utility-
are a form of distributed scale systems. However, expectations for EVs to dominate new vehicle sales, more charging
energy storage resource. infrastructure, and increased data on EV usage patterns should increase traction for vehicle-
We imagine a future where to-grid (V2G) use in the latter half of the decade.
vehicles can help manage
grids and create customer The electric grid is undergoing a fundamental transformation to accommodate higher levels of
savings. intermittent resources and necessitates more energy storage assets. Utility-scale projects will
provide the baseline for bulk electric needs, but a secular shift towards more nimble microgrids
create demand for decentralized assets. According to Bloomberg New Energy Finance (BNEF),
the behind-the-meter battery market is growing at 30–40% annually across the globe, driven
by new residential and commercial batteries. EVs now provide a convenient alternative and
can be incremental to the total addressable market.
The primary benefit of V2G is the ability to lower the total cost of EV ownership. V2G services
allow consumers to arbitrage power prices by selling excess power during times of shortages
and charging during times when power is plentiful. An onboard battery management system
will share data with the grid operator and optimize battery capacity automatically without the
consumer having to exert any work. Arbitrage payments could offset the cost of EV ownership,
or be counted as a rebate on utility bills for providing capacity to the grid. In the future, the
consumer could also participate in ancillary services for the grid with the proper
compensation, assuming regulators implement the right market pricing mechanisms.
Rethinking power distribution

While most consumers currently receive most of their power supply from a centralized grid,
The accelerated resiliency demand could drive a fundamental shift in power distribution. We see two potential
development of virtual outcomes. First, the accelerated development of virtual power plants and microgrids could
power plants and work alongside or displace centralized grids. Second, longer term we could see the
microgrids could work development of the home as a microgrid.
alongside or displace
centralized grids. A virtual power plant aggregates the capacities from different distributed energy resources
(residential rooftop solar and batteries, solar farms, wind farms, etc.) into a network that can
Longer term, we could see dispatch power. Virtual power plants connect to the grid, generally target wholesale markets
the development of the and have aggregation software that functions similarly to a traditional power plant. In
home as a microgrid. September 2020, the U.S. Federal Energy Regulatory Commission (FERC) Order 2222 removed
barriers that prevented distributed energy resources, such as rooftop solar, from participating
in power capacity auctions and that distributed energy resources can participate through
aggregation to satisfy minimum sizes and performance requirements. Companies such as
Sunrun and Sunnova have secured contracts to deliver power from their aggregated systems.
As residential battery storage penetration increases, we expect growth in virtual power plants.
A microgrid is an energy system with control technology that covers a certain geographic
footprint (such as a housing community), which may or may not connect to a centralized grid.
If connected to a centralized grid, microgrids can be “islanded” and continue to work in the
event of a disruption in the centralized grid. The microgrid would provide electricity through
the aggregation of solar power from rooftop panels and battery storage within the community,
and the community could have a rate plan under the microgrid. Microgrids currently exist in
the U.S. including college campuses, medical centers and communities.
Currently, in the U.S., homes connect into the grid, even if homeowners have installed rooftop
solar panels. Longer term, with continued improvements in technology and ongoing cost
reductions, we believe homeowners could in theory completely move off the grid and
resiliently power their homes. The combination of micro-inverters that can provide backup
power without a battery, the proliferation of lower-cost battery storage, EVs with bi-
directional inverters (can provide power to the home), traditional backup power generators
and smart appliances that can self-regulate power needs could technically convert the home
into a microgrid.
In practice, we see several challenges to the home as a microgrid under the current utility
regulatory environment. Some homes, given their location, may not be suited for solar power.
If more homes move off the grid, then utilities would have fewer homes over which to spread
utility costs. That said, over time, we suspect centralized and distributed energy resources can
work together to more efficiently and resiliently provide power.
Exhibit 40 - Sunnova Adaptive Home vision – integrates solar/storage/EV/energy control
Source: Sunnova Company reports
We believe utilities might

offer customers self- Utilities need to be flexible
consumption or demand
Traditional utilities need to adapt to this new world of increasing prosumer numbers and new
side response solutions in
business models. If the definition of a traditional utility is to generate, distribute and supply
which ownership structures
energy, sales of these activities are likely going to fall, but new businesses are starting to
of the self-generation
emerge. We believe utilities might offer customers self-consumption or demand side response
installations differ between
solutions in which ownership structures of the self-generation installations differ between the
the utilities and customers,
utilities and customers, with utilities even providing financing of some installations. In these
with utilities even providing
scenarios, the capital structures of the utilities will differ and we believe successful utilities will
financing of some
need to be increasingly flexible in the future. The European Electricity Federation (Eurelectric)
installations.
has called for and sees the removal of barriers to prosumers as a possible business opportunity
such as forecasting, balancing, backup or aggregation to prosumers. Eurelectric also wants to
expose prosumers to market signals.
The adoption of EVs and the electrification of the transportation sector can be positive for
utilities. Higher levels of grid usage, more infrastructure spending opportunities, and the
acceleration of decarbonization will encourage utilities to try to incorporate more V2G usage.
The greatest opportunities could come from transmission and distribution upgrades, especially
if more fast-charging stations necessitate higher voltage distribution lines.

Genetic medicine: The next frontier of personalized therapeutics

As the Individual Revolution plays out over the years to come, it arguably does not get more
personal than our very own, unique genetic makeup. Genetic defects leading to diseases do
happen. There are an estimated 5,000–8,000 monogenic diseases (conditions that arise from
a single gene) and many more that are polygenic (conditions arising from multiple genes). The
good news is that we have a growing medicinal toolbox to tackle these diseases and the capital
is just pouring in. We estimate ~$150B deployed over the last few years across venture, equity
market, partnerships and M&A (Exhibit 41).
Exhibit 41 - Capital deployed to genetic medicine companies
Source: Companies 10K/Q And Alliance For Regenerative Medicine (ARM), RBC Capital Markets estimates
This influx of capital, combined with some critical scientific breakthroughs, has led to the
We believe that genetic approval of multiple genetic medicines (like Spinraza, Zolgensma, Kymriah and Onpattro) that
medicine will tackle most are changing the lives of patients worldwide. We think this could be just the tip of the iceberg
genetic diseases in the not given that there are more than 1,000 clinical trials underway, preclinical companies are raising
too distant future given we record-breaking capital and multiple academic labs are working on the latest iteration of the
now have ways to dial- technology. Importantly, while the first few drugs were approved for rare diseases (such as
down gene issues, add spinal muscular atrophy, inherited retinal diseases, familial hypertriglyceridemia), the CDC has
genes, remove genes, or now approved two COVID-19 vaccines (mRNA based) in the U.S., and multiple drugs in late-
correct genes. stage development for more prevalent diseases in cardiology, neurology, oncology and
autoimmunity. Overall, we believe that genetic medicine will tackle most genetic diseases in
the not too distant future given we now have ways to dial-down gene issues (RNAi/ASOs), add
genes (gene therapy, mRNA), remove (gene editing) or correct (base editing) genes. The mRNA
vaccines for COVID-19 are probably the epitome of what genetic medicine can do for both
humanity (a recent study from Yale suggest the vaccine has saved 279,000 lives and 1.25
million from hospitalization) and shareholders (Pfizer and Moderna combined revenues for
the year are estimated at $50B+).
We see four general categories within genetic medicine: gene therapy, RNAi/ASO, cell therapy
and gene editing. Gene therapy is the ability to deliver genes in patients with genetic defects,
RNAi/ASO is the ability to turn off the expression of genes, cell therapy uses cells (most often

manipulated in the lab) as a therapeutic and gene editing is the ability to edit the molecular
code of life (either DNA or RNA). The graphs below represent the value that the leading public
companies in each category have unlocked over the last five years. Numbers are impressive
with gene therapy moving from $22B in cumulative market cap to $48B (Exhibit 42), RNAi/ASO
from $10B to $38B (Exhibit 43), cell therapy from $3B to $31B (Exhibit 44) and gene editing
from $2B to $40B (Exhibit 45).
Exhibit 42 - Gene therapy market growth
Source: FactSet, RBC Capital Markets
Exhibit 43 - RNAi/ASO market growth

Exhibit 44 - Cell therapy market growth
Exhibit 45 - Gene editing market growth
We now have multiple drugs approved in each of the categories including RNAi (Alnylam has
four commercial products, IONS has three), cell therapies (Yescarta, Kymriah, Abecma,
Despite all the success, Breyanzi), and gene therapy (Luxturna and Zolgensma). There are no approved drugs yet for
innovation has not been a gene editing but we believe Intellia Therapeutics has shown over the summer a clinical signal
straight line and investors in TTR-polyneuropathy that is likely to translate into an approvable drug.
need to weigh the promise
of these breakthroughs Despite all the success, innovation has not been a straight line and investors need to weigh the
against potential safety and promise of these breakthroughs against potential safety and regulatory risks. We review here
regulatory risks. where the four key categories within genetic medicine are in the innovation cycle and where
we think they will go from here.

RNAi – From turning off genes in worms, to a $40B market

making an impact for patients
RNAi was first discovered in C. elegans (tiny transparent worms about 1 mm in length that live
in the soil). Craig Mello (University of Massachusetts) and Andrew Fire (Carnegie Institution of
Washington) discovered that small pieces of RNA can be used to prevent mRNA translation,
effectively turning off the expression of individual genes in these worms (Exhibit 46). The work
started in 1998 and the two professors won the Nobel Prize in 2006. In a 20-plus year journey
with plenty of ups and downs, that foundational discovery in worms has now lead to a $40B
market and the approval of multiple drugs. We think the technology is now refined, safe and
effective and the $40B market could just be the tip of the iceberg as the approach will now be
used for much larger indications and possibly for new tissues beyond the liver.
Exhibit 46 - RNAi mechanism of action
Source: Bumcrot, D., et al. 2006, Nat. Chem. Biol., Society for Mucosal Immunology
After the pioneering work in C. elegans by Mello and Fire, funding started to pour in after Mark
Kay at Stanford University demonstrated that the molecular trick could also be replicated to
turn off genes in mice. VC-backed Biotechs were quickly formed, and upon early proof-of-
concept in eye or lung, Pharma started to either collaborate with them or buy them outright.
By the late 2000s, TAK and RHHBY had $1–2B deals with Alnylam, Novartis took a 20% equity
stake in Alnylam, Merck bought Sirna Therapeutics for $1.1B in cash and Abbott and Pfizer had
independent, early programs in development. However, by the early 2010s, things quickly
soured. Delivery became an issue as disguising the molecule from the human immune
system/enzymatic degradation became difficult. By the mid-2010s, Merck gave up on Sirna
and sold it to Alnylam at a $925M loss ($175M). Alnylam went through two rounds of layoffs
and was struggling to rationalize why there was a mortality imbalance in its molecule revusiran
(13% vs 3% for placebo), Arrowhead cut its workforce by 30% after discontinuing its lead
program for Hepatitis-B (NHP data showed increased mortality) and DRNA traded at cash after
its early program for oncology was discontinued (MYC-1). Most investors gave up on the space,
but the few that did not, have been handsomely rewarded. Since January 2017: Alnylam
unlocked ~$22B in value and is up ~7x, ARWR unlocked ~$7B in value and is up ~59x and
Dicerna unlocked $1.5B in value and is up ~27x (Exhibit 47).

Exhibit 47 - Market growth Of RNAi leaders Alnylam Pharmaceuticals, Inc., Arrowhead

Pharmaceuticals Inc., and Dicerna Pharmaceuticals Inc.
So how did the field turn the story around? Well, chemistry is the answer. Companies
developed chemical modification that allowed siRNA to be more stable to enzymatic
degradation, less recognizable by the immune system and more targeted to the liver via LNPs.
ALNY got the first molecule over the finish line (Onpattro) for TTR-polyneuropathy and all
companies are now moving to an even better delivery system called GalNAc. In contrast with
LNPs, which require IV administration, GalNAc can be administered subQ, is easier to
manufacture and has a broader therapeutic index. ALNY has three additional drugs approved
in the U.S./EU using GalNAc (Givlaari for acute hepatic porphyria, Oxlumo for primary
hyperoxaluria and Leqvio for hypercholesterolemia) and the company now has visibility to
cash flow profitability, despite trading at cash not too long ago.
We think RNA technology is Overall, we believe that this could be just the tip of the iceberg as we see several molecules from
now refined, safe and companies in the space poised to garner approval in other indications for cardio metabolic
effective and the $40B diseases (cardiomyopathy, hypertriglyceridemia, hypercholesterolemia, hypertension, NASH,
market could just be the tip Lpa), genetic diseases (alpha-1 antitrypsin, hemophilia) and infectious diseases (Hepatitis B).
of the iceberg as the Importantly, we think these indications have a relatively high probability of success given they
approach will now be used are all targeting the liver and use an established platform like GalNAc. A testament to the promise
for much larger indications is that Pharma is back with Eli Lily, Novo Resources Corp., Regeneron Pharmaceuticals, Amgen
and possibly for new tissues Inc., and Johnson & Johnson, and Boehringer Ingelheim all signing deals with siRNA companies.
beyond the liver.
Barring any unforeseen circumstances, we think the field of siRNA will continue to grow as
indications going after liver targets are fairly de-risked at this point and we could be looking at
a totally different field should companies be able to deliver siRNA to tissue beyond liver like
CNS, lung, muscle or kidney.

In vivo gene therapy: Tough few months with multiple setbacks,

but innovation continues to make progress
In vivo gene therapy delivers a missing gene through the use of a viral vector directly to the
patient, which is subsequently able to transfect the patient’s cells and begin producing the
missing protein (Exhibit 48).
Exhibit 48 - In vivo gene therapy
Source: Gene Therapy in Hemophilia, ISTH.org
Two gene therapies have been approved by the FDA, RHHBY’s Luxturna for RPE65 (an inherited
form of blindness) and NVS/RGNX’s Zolgensma for SMA (a genetic neuromuscular disease).
Both therapies are making an impact for patients, with Luxturna’s treated patients gaining
enough vision to navigate a maze-like course, and Zolgensma-treated babies (otherwise
dying/permanent ventilation within two years of age) achieving key motor function milestones
(including sitting) and extended survival.
Despite all the enthusiasm and the recent approvals, safety and durability have been an issue.
On safety, the dark days of Jesse Gelsinger (one of the first patients treated with a gene
therapy who died in a clinical trial, UPenn/Nation Children ultimately agreed to settle for $1M+
with the DOJ) were thought to be behind us with new knowledge about viral vectors, but
multiple setbacks have been reported in the recent months nonetheless. Among the most
prominent, we note: 1) four deaths due to liver toxicity in the Audentes/Astellas trials for X-
linked myotubular myopathy, 2) complement activation in the SLDB’s trial for Duchenne’s
muscular dystrophy, 3) MRI abnormalities in the VYGR/NBIX’s Parkinson’s disease trial post
intracerebral injection, and 4) dorsal root ganglion inflammation in primates for NVS/RGNX’s
Zolgensma. On durability, it has been undeniably shorter than originally hoped and the FDA
We think now is a great has requested longer follow-up to both BMRN and QURE for two different types of hemophilia.
time to look into gene These setbacks, combined with some manufacturing issues have led to a string of clinical holds,
therapy with much of the complete response letters and delays. Overall, we estimate that these setbacks have pulled
hype removed, but back the cumulative market cap in gene therapy by ~$15B YTD.
innovation continuing to
make steady progress in a However, VC funding continues to fuel the pipeline of private companies and with 2,600 gene
wide variety of rare therapy trials currently ongoing, we think the field could be today where RNAi was in 2015 or
diseases and prevalent so. We actually think this is a great time to look into gene therapy with much of the hype
indications for the eye, removed, but innovation continuing to make steady progress in a wide variety of rare diseases
heart and CNS. (hemophilia, Duchenne, Fabry, Dannon, Huntington’s, PKU, MPS, etc.), and prevalent
indications for the eye (macular degeneration/diabetic retinopathy), heart (cardiomyopathy)
and CNS (Alzheimer’s). Going forward, we think the combination of new vectors, new
prophylactic regimens and more rational indication prioritization focused on local delivery for
diseases with high unmet need will create value for patients and shareholders.

To improve durability, we think new viral vectors are key. Next-generation AAV vectors are
driving higher expression (link) and alternative tissue tropism (current vectors have strong
affinity for the liver). AAV will continue to transduce genes episomally, but higher expression
levels will extend durability (starting at a higher level should help mitigate any waning activity
over time). On alternative tropism, being able to reach tissues outside of the liver (heart link,
peripheral nervous system link, bone marrow, link) would materially broaden the potential
indications which can be treated by gene therapy.
On safety, many current approaches exclude patients with an immune system primed to attack
the viral vector, and include prophylactic steroid regimens to limit immune responses. One
step further could include the use of B-cell depletion agents like rituximab. In gene therapy
studies where patients received rituximab as an add-on to steroids, the immune response was
greatly attenuated (link). In addition to safety, prophylactic B-cell depletion may allow re-
Cell therapies are the most dosing, something not doable today. This method has not been widely explored in clinical trials
personalized out of any of yet, but we think could gain traction in the next few years as it is a clever solution to both
the genetic medicines since safety and re-dosing.
they typically are created by
taking a patient’s own cells, Ex vivo gene therapies – A highly personalized gene therapy approach for rare
modifying them outside of disease
the body (a.k.a. ex vivo) and Cell therapies are the most personalized out of any of the genetic medicines since they
re-infusing them back to the typically are created by taking a patient’s own cells, modifying them outside of the body (a.k.a.
patient. ex vivo) and re-infusing them back to the patient (Exhibit 49). Other types of cell therapies
which use a patient’s stem cells are in development for a wide range of rare, genetic diseases
(bluebird bio Inc.’s Zynteglo for beta-thalassemia is already approved in the EU with pending
approval for sickle cell disease, Avrobio’s Fabry disease program is currently in Phase I/II).
Much like gene therapy, this type of cell therapy is also gene-additive, and since the therapy
derives from a patient’s own stem cells that engraft in the bone marrow, they may have longer
lasting effects vs AAV-based in vivo gene therapies, but limitations related to safety and toxic
pre-conditioning regimens are areas in need of improvement.
Exhibit 49 - Ex vivo gene therapy
Source: High, K., et al. 2019. NEJM.

To expand the field, ex vivo hematopoietic stem cell therapies will need to include
less toxic preconditioning regimens
The biggest limitation of ex vivo cell therapies for genetic diseases is the pre-conditioning
regimen the patients must endure before receiving the treatment. The benefit of these cell
therapies is potentially lifelong since they use patient-derived stem cells, add in the missing
gene, and reinfuse the cells back into the same patient where they will engraft into the bone
marrow and continually produce the new protein. For the bone marrow engraftment to
succeed, the old bone marrow must be removed with the pre-conditioning agent busulfan.
Busulfan is a non-specific alkylating agent which can break or cross-link strands of DNA causing
a wide range of side effects including: 1) risk of severe infection (the patient’s immune system
Going forward, we think the is ablated during treatment), 2) infertility, and 3) increased cancer risk in some patient
use of less-toxic and more populations (bluebird bio reported 2 cases of AML/MDS in sickle cell patients after receiving
precise antibody-based pre- Zynteglo). Going forward, we think the use of less-toxic and more precise antibody-based pre-
conditioning regimens will conditioning regimens will help to make ex vivo cell therapies more appealing to patients and
help to make ex vivo cell physicians. Magenta Therapeutics, Jasper Therapeutics, and Forty Seven (acquired by Gilead
therapies more appealing to in 2020 for $4.9B) all have conditioning agents in development that target receptors specific
patients and physicians. to hematopoietic stem cells in order to clear them from the bone marrow. The enhanced
specificity of a monoclonal antibody approach vs a non-specific small molecule approach like
busulfan, could help to limit any off-target effects. These programs are early in development,
but we think highly specific antibody conditioning agents will eventually replace toxic busulfan
for ex vivo cell therapies.
CAR T-cell therapies – A patient-centric approach to blood

cancers
Autologous (or obtained from the same individual) CARTs (chimeric antigen receptor T-cell)
are derived from a patient’s T-cells and modified in order to form a highly specified attack on
certain forms of blood cancers (Exhibit 50). Currently, there are five CARTs that are FDA
approved (Gilead’s Yescarta & Tecartus, Novartis AG’s Kymriah, Bristol-Myers Squibb’s
Breyanzi, Bristol-Myers/bluebird bio’s Abecma), all for specific forms of blood cancers (Non-
Hodgkin’s Lymphoma, acute lymphocytic leukemia, mantle cell lymphoma, and multiple
myeloma). Thus far, cell-derived therapeutics have shown some pretty impressive results in
relapsed/refractory cancer patients with few remaining options (Yescarta has a 72%/51%
overall response/complete response rate in relapsed/refractory LBCL patients, and Abecma
has a 72% response rate in patients with relapsed/refractory multiple myeloma).

Exhibit 50 - CAR T-cell therapy
Source: NCI, cancer.gov
Future of CART is allogeneic – One donor, many patients

Autologous CART (same patient-derived) therapies for oncology have been shown to be very
effective, however they come with limitations, including safety (severe immune responses
called cytokine release syndrome are common) and complex logistics (cells need to be taken
from the patient, flown to a facility to modify the cells, and then flown back to be reinfused to
the patient). This has spurred the need for an off-the-shelf alternative known as allogeneic
CART. Allogeneic CART programs aim to derive T-cells from a healthy donor, which are
modified to not only attack tumors, but also limit the risk of graft-vs-host disease when they
are given to sick patients. Since the cells are donor derived, this limits the complex logistics
and potential manufacturing failure associated with patient-derived CART, and allows for
potential re-dosing. Allogeneic approaches are now possible to explore since the donor-
derived T-cells can be modified with gene editing approaches so that the risk graft-versus-host
disease is almost eliminated.
Several companies have allogeneic approaches in development (Allogene Therapeutics, Crispr

Therapeutics, Intellia Therapeutics, Caribou Biosciences, Beam Therapeutics), and have shown
some promising early results on safety (Allogene and Crispr both reported fewer rates of
severe Cytokine Release Syndrome than autologous), efficacy (Allogene and Crispr both
reported efficacy data within same range as autologous), and the benefits of redosing
(Allogene and Crispr have both seen improved efficacy with two doses). Allogeneic programs
are still early in development and have faced some recent challenges (ALLO’s clinical programs
are on a clinical hold after a chromosomal abnormality was found in the CART cells of one
follicular lymphoma patient, and CRSP response rates do not appear to be as durable as most
other autologous CARTs), but we think these issues can be overcome with time and allogeneic
will become the preferred cell therapy for blood cancers as the whole field is moving in this
direction.
Gene editing excitement has been brewing in 2021, but where

do we go from here?
Gene editing refers to any molecular biology tools that are able to permanently knock out,
correct, or insert a gene at a highly specified area of the genome (Exhibit 51). Gene editing
CRISPR is such an exciting tools such as TALENs (Allogene), and Zinc-Finger Nucleases (Sangamo Therapeutics), have
innovation due to its high been around for some time, but it was the discovery of the CRISPR/Cas9 system by Jennifer
level of on-target specificity, Doudna and Emmanuelle Charpentier (who ultimately were awarded the Nobel Prize in 2020
high level of editing for their discovery) which has truly revolutionized the field. CRISPR is so exciting due to its high
efficiency, and versatility to level of on-target specificity, high level of editing efficiency, and versatility to be used both ex
be used both ex vivo or in vivo or in vivo, or as a gene reduction, gene correction, or gene insertion approach. As a result
vivo, or as a gene reduction, of the Nobel Prize win, media attention, interest from some high-profile investors, and
gene correction, or gene promising early clinical data from Crispr and Intellia Therapeutics, CRISPR-based biotechs have
insertion approach. attracted significant attention recently. Clinical data has really fueled the value of these
programs. For instance: 1) Crispr demonstrated CRISPR can work in an ex vivo approach to
treat sickle cell disease/beta-thalassemia (program spurred an additional $900M investment
for an extra 10% ownership from partner Vertex in 2021), and 2) Intellia reported game
changing initial results that showed CRISPR components can be delivered in vivo by a lipid
nanoparticle to safely and effectively lower levels of abnormal TTR protein better than current
therapies (data from six patients resulted in an initial stock price increase of 50%, plus a
substantial over-subscribed follow-on offering of $690M). Overall, 2021 has been an
unforgettable year so far for CRISPR-based gene editing.
Exhibit 51 - Gene editing stands as a core healthcare theme of the Individual Revolution
Source: Burgio, G., 2019. BioTechniques
Where does CRISPR go from here? Time for base editing to drop
Crispr and Intellia’s initial clinical programs both rely on the first generation CRISPR/Cas9
system. CRISPR 1.0 is excellent at knocking out genes, but it is unable to perform gene-
correction where one mutant nucleotide is changed for the correct base pair. Thus, in order to
benefit patients who have single disease causing mutations (sickle cell disease, A1AT, etc.), a
more precise approach – base editing – is needed. Base editing is being pioneered by Beam
Therapeutics, Intellia, and Verve Therapeutics, and offers several advantages: 1) it can swap-
out single nucleotides in a highly precise manner (A to G or C to T transitions), 2) it is versatile

and can be used for gene knockouts or gene correction, both ex vivo or in vivo, 3) it avoids
double stranded breaks in DNA which could limit potential off-target edits or genetic
translocations (gene traveling from one area of the genome to another), and 4) it can be used
for multiplex editing (multiple edits simultaneously) to make highly specialized CARTs for blood
cancers and potentially solid tumors. There are no base editing programs in the clinic yet, but
we think this approach will drive the future of gene editing due to its increased level of
specificity and versatility.
Genetic medicines are in their infancy with rare diseases, but will transition to
more common indications as the field grows
Considering the very first commercialized medicine, Aspirin, a small molecule derived from the
bark of the willow tree, was first made available to the mass market in 1915 (link), the field of
drug development has made almost unbelievable advances in a relatively short period of
human history. In just over a century, we have gone from relying on non-specific, plant-based
derivatives with limited knowledge as to how they worked as our main source of medications,
to a wide range of therapeutic modalities with increasing levels of specificity and
personalization, including: monoclonal antibodies, bispecifics, antibody-drug conjugates,
The future of genetic RNAi/ASOs, mRNA, gene therapies, cell therapies and gene editing.
medicine will not be limited
to a small portion of the Genetic medicines are still in their infancy (first ASO ever approved was Novartis/ Ionis
population, but could Pharmaceuticals’ Vitravene in 1998, first gene therapy ever commercialized was Gendicine in
eventually become the China in 2003, first CART ever approved was Novartis’ Kymriah in 2017, Roche’s Luxturna was
treatment of choice for the the first gene therapy ever approved by the FDA in 2017, and the first RNAi approved was
majority of illnesses or Alnylam Pharmaceuticals’ Onpattro in 2018), and are mainly focused on rare diseases.
diseases, leading to a world However, as the field understands more about how best to use these molecular tools, and
where people are spared improves upon their safety and efficacy, the future of these treatments will be for more
from the omnipresent common indications.
threat of infectious disease,
We have already seen the use of genetic medicines in the larger population with the mRNA
and are free from the
based COVID-19 vaccines from Moderna and Pfizer/ BioNTech SE, and recent reports from
constant health burden of
Pfizer suggest that an mRNA-based flu vaccine is also in development, which could mean even
chronic diseases.
more mRNA will make its way into people’s arms across the world. Other common
cardiovascular indications like high blood pressure (Ionis Pharmaceuticals and Alnylam
Pharmaceuticals both have programs in the clinic), high cholesterol (Novartis/ Alnylam have
an RNAi therapeutic, Leqvio targeting PCSK9 which is EMA-approved/pending FDA approval),
and dyslipidemia/hypertriglyceridemia (Arrowhead/IONS both have multiple RNAi/ASO based
programs) are all currently in development. Even more interesting, base editing company
Verve, is also targeting common cardiovascular disease indications, aiming to offer potentially
life-long, one-time treatments for high cholesterol. Diabetes is also another area where
genetic medicines hope to relieve patients of their frequent insulin injections – Crispr and
partner ViaCyte have an allogeneic stem-cell derived therapy in early stage development for
type 1 diabetes, and Kriya (private) has an AAV-based gene therapy in the works as well. Thus,
the future of genetic medicine will not be limited to a small portion of the population, but
could eventually become the treatment of choice for the majority of illnesses or diseases,
leading to a world where people are spared from the omnipresent threat of infectious disease,
and are free from the constant health burden of chronic diseases.

Artificial Intelligence Activated
Table of contents
Artificial Intelligence Activated – Introduction ................................................................... 94
Information Services: Data, the crystal ball to predict the future ....................................... 96
Software: Automation in practice....................................................................................... 99
Autos: Software-enabled vehicles transform many industries .......................................... 105
Aerospace & Defense: There’s a new class in Top Gun ..................................................... 107
Med Devices: Artificial Intelligence & Autonomous Robotics ........................................... 108
Healthcare: Accelerating drug discovery .......................................................................... 110
Healthcare Technology: Improving financial health with a digital workforce ................... 111
Energy & Utilities: Digitization and AI in oilfield services .................................................. 114
Mining: “Intelligent mining” – AI and machine learning ................................................... 118
Datacenters: The AI data storage conundrum .................................................................. 120

Artificial Intelligence Activated – Introduction

Artificial Intelligence Activated: While we are some time away from general purpose artificial
intelligence that science fiction cautions us about, AI is becoming a critical component to all
aspects of business. The battleground for AI is now migrating from understanding its potential
and acquiring capabilities to putting the concept into action. And while AI brings plenty of
benefits (solutions that learn and improve over time, more powerful software to automate
mundane tasks, etc.), it also brings with it many risks, including security concerns and the
potential for unprecedented job displacement/transition.
We see every company becoming a digitally enabled company over time and expect to see
more and more of our daily interactions powered by technology. We’ve already seen
traditional interactions completely changed with technology: Work has changed with video
conferencing, travel and leisure has changed with ride sharing and homestays, entertainment
has changed with over-the-top (OTT), and even dating and marriage has changed with online
Today, an increasing dating applications.
portion of our digital
experience is powered by AI The next leg is artificial intelligence (AI), which has already made the leap from theory to
that gets smarter with more reality. Today, an increasing portion of our digital experience is powered by AI that gets
usage and with more data. smarter with more usage and with more data (e.g., social media that provides more relevant
We believe that, over time, content based on your profile, but also uses that data for increasingly specific advertising). We
technology will evolve from believe that, over time, technology will evolve from AI-enabled applications (on both the
AI-enabled applications to consumer and industrial side) to true general purpose AI, which we view as the fifth industrial
true general purpose AI, revolution.
which we view as the fifth
industrial revolution. We see a number of key debates with the rise of general purpose AI:
Automation and jobs. Most AI today is designed to work with people and make them more
effective, versus outright replacing them, but that could change over time. While society has
always seen jobs replaced by automation, general purpose AI could lead to an accelerated rate
of job replacement. Importantly, the nature of those jobs will be very different than in
centuries past, as we could start to see white-collar jobs replaced by digital processes – jobs
like reviewing legal documents, reading and analyzing x-rays, and reconciling accounting could
one day be replaced by software. The important question is does society adapt to this
accelerated automation and create new jobs (as has traditionally happened during prior
industrial revolutions) or will society have to adapt to a massive amount of permanently
unemployed/underemployed people?
Privacy. As noted, AI works best with the more data it aggregates and society provides literally
zettabytes (one trillion gigabytes) of data. We expect to see more societal pushback around
ownership of data, but also wonder if society is willing to give up premium “free” offerings
(including social media and email) in exchange for data privacy.
Fairness and equity. We see emerging debates around the fairness of AI applications. For
example, AI can lead to pricing discrimination, such as lower healthcare premiums for
physically active people (data provided through phones and fitness trackers) or lower
automobile insurance premiums for “safe” drivers (data provided through connected cars). In
addition, AI, facial recognition, and sentiment analysis can already be used to filter candidates
for interviews, but over time, we wonder if these tools can be used for law enforcement or
negotiations. We also believe access to AI won’t be equitable and wonder if those with access
to AI systems will increase the wealth disparity versus those without direct access. Finally, as
alluded to in the first point, accelerated automation of jobs could lead to a massive wealth
disparity between those with “AI-proof” jobs and those without.

Security. Not only are there worries around potential data breaches with the massive amounts
of data being collected and stored, but artificial intelligence creates additional security risks.
For example, with seemingly every device being “connected” (debatable how necessary that
may be), hackers have greater entry points into the lives of individuals and businesses, and
physical devices can be misused. In addition, we believe there is potential for general purpose
AI to be misused by nefarious actors and even expect AI could become the next “arms race.”
Can artificial intelligence exceed human intelligence? To us, this is the critical long-term
debate on general purpose AI: is there a true ceiling to how “smart” AI can get? We wonder if,
over time, AI systems learn to not just emulate human processes learned from human
behavior, but instead evolve to teach themselves. Or, perhaps the greater worry, what
happens when AI systems begin talking to one another and potentially exceed human
intelligence?

Information Services: Data, the crystal ball to predict the future

Artificial Intelligence (AI), Machine Learning (ML), and the Cloud are enabling Information
Services to deliver predictive actionable insights. Cloud has minimized the barriers to capture
alternate datasets, store and analyze big data, and distribute data at scale using APIs and a
Cloud distribution platform. Natural Language Processing (NLP) has enabled analysis of
unstructured data while Entity Linking has facilitated programmatic linking of disparate
datasets. AI/ML made it possible to generate insights and predictions, which has been
transformative.
Data Lake/Data Fabric implemented using the Cloud infrastructure has enabled aggregation
and analysis of disparate structured (numbers) and unstructured (text, images, audio, video)
data. In addition, data cataloging is making it easier to discover content. RPA (Robotic Process
Automation) and AI have streamlined data ingestion by automating manual data entry. Cloud
Distribution Platforms (CDP) and APIs have made it easier to distribute data and deepen the
The confluence of secular integration with the customers' workflow creating an upward spiral for alternate data.
trends, namely
Digitalization and the focus The confluence of secular trends, namely Digitalization and the focus on ESG, accelerated by
on ESG, accelerated by COVID-19, along with the democratization of Cloud and AI/ML, has accelerated the demand
COVID-19, along with the for industry-specific proprietary data. Cloud, along with the adoption of AI/ML/Deep Learning,
democratization of Cloud has also accelerated the demand for data. As a result, Information Services companies with
and AI/ML, has accelerated access to industry-specific proprietary data and domain expertise can capitalize on the secular
the demand for industry- trends, which enables them to deliver accelerated revenue growth with strong barriers to
specific proprietary data. entry.
Transformation of the data lifecycle using Cloud, AI/ML, and RPA has resulted in improving
quality, depth, and breadth of data. In addition, it has expanded Alternate Data from diverse
sources, including Internet of Things (IoT). Data accuracy has improved with real-time updates.
AI is generating predictive insights while minimizing friction in distributing data. This has
resulted in driving revenue growth from improved customer experience and greater demand
for data while lowering expenses of gathering, analyzing, and distributing data.
Exhibit 52 - Transforming data lifecycle leveraging Cloud and AI/ML
Source: Company reports, RBC Capital Markets
Information Services companies have expanded analytics and workflow software tools to
deeply integrate into customers’ workflow. For example, MSCI’s Analytics solution leverages
strength in Indices and ESG. Verisk Analytics acquired FAST, a provider of policy administration
software for the life insurance and annuity sectors. Verisk also acquired Sequel, provider of
commercial, and specialty insurance software. Moody’s Software serves as a Chassis for

Integrated Risk Assessments and combined curated data with analytics to help customers
make better decisions.
Exhibit 53 - Multi-pronged transformation and growth strategy
Information Services companies are using Alternate Data and expanding into adjacent verticals
and new horizontal offerings, which has led to expansion of the overall pie. Alternate Data has
helped improve, streamline, and automate decision-making driving a better consumer
experience, faster turnaround, higher quality results while lowering expenses as well as the
overall risk profile. For example, alternate data such as employment and income data, utility,
and rent payments have improved consumer credit decisions by providing access to
consumers with thin or no traditional credit files. Lenders are looking at data over a period
(trended data) rather than a point-in-time snapshot to obtain a better perspective on
consumers' credit behavior. The demand for Alternate and Trended Data has driven
accelerated growth for the Credit Bureaus (TransUnion/Equifax).
Information Services companies are leveraging their existing data sets for new uses outside
the core verticals. Credit Bureaus have leveraged their core strength among traditional lenders
to expand in FinTech, Insurance, Healthcare, Public Sector, and Gaming/Gambling. Credit
Bureaus are also leveraging consumer information to expand into Identity and Fraud Solutions,
as well as Digital Marketing.

Exhibit 54 - Data is the new oil

Software: Automation in practice

We feel that automation will become an increasingly important supplement for shortages in
skilled human capital as “human tasks” move up the value chain with manual repetitive tasks
All statements in this report increasingly being accomplished by machines.
attributable to Gartner
represent RBC Capital Wants and needs; looking to the future of automation
Markets, LLC's Within the software industry, automation can refer to many different things including simple
interpretation of data, job scheduling or workflow to low-code and no-code tools, robotic process automation (RPA)
research opinion or as well as machine learning and artificial intelligence. At its core, automation improves the
viewpoints published as quality, consistency, and quantity of work that can be delivered by practitioners through the
part of a syndicated supplemental use of software. This has become increasingly important as the network
subscription service by topology continues to expand with cloud growth, hybrid-work is the new normal and there are
Gartner, Inc., and have not fewer skilled workers. Overall, we believe automation tool usage will increase dramatically
been reviewed by Gartner. over the next 10 years.
Each Gartner publication
speaks as of its original The earliest utilization of automation often came from job scheduling, orchestration and
publication date (and not as leveraging simple workflows. While these technologies have been around for decades, they
of the date of this report. continue to be instrumental in the elimination of repetitive tasks and increasing the efficiency
The opinions expressed in of scarce resources. Orchestration and workflow allow teams to leverage best practices to
Gartner publications are not replicate previous work into new areas. This remains one of the purest forms of automation,
representations of fact, and using software for repetitious tasks. From here, the use cases and capabilities of automation
are subject to change have grown considerably, continuing to increase the efficiency of the workforce to help deal
without notice. with a severe shortage in skilled talent, increasing the value of human capital by making
workers more efficient. Much of the recent forms of automation have come from leveraging
robotic process automation (RPA) as well as AI and (ML).
Looking out over the next
10 years, we believe Looking out over the next 10 years, we view automation as both a want and a need. While
automation will become a currently there are concerns around automation replacing workers, our view is that in the
necessity for filling the future, we need to leverage automation at an increasing rate. We believe automation will
global talent shortage, become a necessity for filling the global talent shortage, ultimately leading to increased
ultimately leading to adoption, and a reshaping of the enterprise. As the capabilities for automation continue to
increased adoption, and a expand, the bar will be raised for what is considered “human work” leading to more fulfilling
reshaping of the enterprise. jobs for workers focusing on creativity and problem solving and not the repetitive tasks that
can be more efficiently accomplished through automation.
In our view, this will lead to
an increased focus on As part of Korn Ferry’s “Future of Work” series, they estimate that the global talent shortage
creativity and problem for all markets will be roughly 85 million people by 2030, resulting in $8.5T unrealized annual
solving in jobs for workers revenue. We believe automation will be required to fill this gap but is also expected to create
solving. more jobs than it makes redundant, with our interpretation of Gartner (“Predicts 2019: AI and
the Future of Work,” Helen Poitevin, Moutusi Sau, Svetlana Sicular, Eric Hunter, Cindi Howson,
Kanae Maita, December 13, 2018) indicating that in 2020, AI would become a positive net job
motivator, creating 2.3 million jobs while only eliminating 1.8 million jobs.
This is not to say that there will not be growing pains in terms of retraining and reallocating
resources. We feel companies will look at automation as a balance of wants and needs, with
the largest and earliest investments to supplement human capital and make them more
efficient, with the replacement of workers not being a priority compared to reallocating them
to focus on high-value tasks.
Looking at cybersecurity as an example, according to a 2020 annual Cyber Security Workforce

Study by (ISC)^2, the gap in cybersecurity talent has reached a shortage of ~3.12 million in the
United States alone and there are ~897,000 cybersecurity professionals with another ~359,000

unfilled positions. When looking at graduation rates in computer science, we’ve seen relatively
stable trends at 3–4% of bachelor’s degrees over the past decade. Given these trends, we feel
it is unlikely more human resources are the answer in the near term.
This skilled labor gap was exacerbated by the pandemic as work environments continue to
grow and become more complex. There is no human solution in the short term, although
increasingly there are steps being taken to fill the gap, including addressing the gender gap as
only 25% of cybersecurity professionals are women, with an increased focus on diversity,
equity, and inclusion. Additionally, based on our interpretation of Gartner (“Predicts 2020: AI
and the Future of Work,” Helen Poitevin, Svetlana Sicular, Sam Grinter, December 6, 2019)
which highlighted other positive aspects of automation noting that by 2023, the number of
people with disabilities employed will triple due to AI and emerging technologies reducing
barriers to access. Currently, according to the same (ISC)^2 report, the labor gap is expected
to grow by 20–30% annually over the next several years.
Key components of an automation strategy to help fill the skilled labor gap
The skilled labor gap is The key to filling this skilled labor gap with software is maximizing the efficiency of workers.
expected to grow by 20– Outside of basic job scheduling or orchestration, the four main ways we look to automation to
30% annually over the next solve this is through:
several years – closing this
gap will require maximizing Low-code/no-code: Low-code/no-code solutions can help to lower the bar for coding,
the efficiency of workers as application creation, and creating automated processes for citizen developers. This has a
well as retraining and two-fold benefit, allowing business users who are actually using the applications or
reallocating resources. processes to have an active role in their creation and lowering the burden on scarce
developer resources by enabling simpler tasks to be off-boarded. Once created, these
automated processes can remove remedial tasks from workers allowing them to increase
their efficiency by focusing on higher-value work.
RPA: This includes the automation or augmentation of manual repetitive tasks to improve
user productivity. Traditionally, RPA thrived in environments that mimic the actions of an
end-user using rule-based logic. RPA intercepts instructions between an application and
the operating system and reroutes the task to an RPA bot for execution. RPA bots are
either attended or unattended, where an end-user or the commencement of a workflow
must trigger attended bots. Unattended bots execute routine tasks that do not require
user interaction. Generally, these bots are accessed by multiple workstations/clients and
can complete tasks across several devices. More advanced forms of RPA now have robots
that emulate human behavior and are adaptable to evolving external variables. This leads
to a more intuitive process for customers on how to utilize and interact with robots as
well as the ability to utilize robots for both simple and complex use cases. The idea is to
enable workers to interact with robots the same way they would with a human. A key to
both low-code/no-code solutions and RPA is the ability for lower-skilled workers to be
involved in the creation of tools to make their own work more efficient. This has led to
the rise of citizen developers, who are able to create solutions to their own problems,
without taxing developer resources.

Exhibit 55 - Citizen Developer use cases
Source: Gartner, “The Importance of Citizen Development and Citizen IT” Jason Wong, October 10, 2019
Consistent with Moore’s Machine learning and augmented intelligence: Machine learning is utilized to separate
law, which states that the the news from the noise. Consistent with Moore’s law, we continue to see exponential
number of transistors on a data growth as the world becomes increasingly connected. While we have access to
microchip doubles every increasing volumes of data, the aggregation of data or logging has largely been
two years, we continue to commoditized. There is now a greater focus on how to make sense of that data, which is
see exponential data where machine learning and increasingly specific algorithms have become more
growth as the world impactful. Augmented intelligence is the process of combining the skills of both computers
becomes increasingly and humans, utilizing machines to generate relevant actionable information while
connected. humans can focus on leveraging context, creativity, and industry expertise to efficiently
make decisions. A prime example is in security alerts; generating alerts for anomalous
behavior in a large enterprise often leads to alert fatigue where thin cybersecurity
resources are trying to find the “needle in a needle stack.” Machine learning allows alerts
to be prioritized based on metadata to create scoring that takes into account how likely
the alert is malicious and how impactful it might become. This allows the handoff to the
human counterpart to be much further down the line than if the person is left to decipher
the threat level on their own.
True artificial intelligence: True artificial intelligence is utilized to replace worker tasks,
but we think it is important to emphasize, as noted earlier, that this is not the same as
replacing workers. While machine learning and artificial intelligence typically go hand in
hand, the difference is in decision making. Machine learning is utilized to improve artificial
intelligence, becoming more adept at decision making as data volumes grow by gaining
additional context. In general, AI is utilized to replace mundane tasks that cannot be
accomplished efficiently by humans. In this way, AI is not taking away jobs, but increasing
their value, by leaving humans to the core competency of natural intelligence, allowing
them to be complex contextual decision makers. As capabilities around AI grow, the
threshold for what types of decisions can be made will continue to rise, with the long-
term goal of AI replicating or improving upon the thought process of human workers.

The rise of DevSecOps, due in part to automation

At its core, AI and ML create speed and efficiency. One area where we have seen this
highlighted is in development with a focus on agile development and continuous release cycles
being enabled by ML, AI, and low-code/no-code tools. These efficiencies allow for rapid
development with applications going from ideation to production in record times, which has
created an increased need for interoperability between developers, security, and IT
operations. This has resulted in a convergence of the three groups as well as their budgets to
the idea of DevSecOps, but also the need for common data sets and automation tools that are
aware of one another.
The reason we view this market as likely to converge is the data. Security, IT, and DevOps
teams have common goals and often utilize common data sets. The idea that their tools are
not communicating is not sustainable, in our opinion. While SIEM and SOAR solutions have
primary goals around identifying and responding to security events, anomaly detection is a
We believe that security, IT, close cousin to identifying performance issues in applications. All can use UEBA to discover
and DevOps teams will insider threats or performance issues used for security but also to manage user experience.
continue (and need) to The core to all of these technologies is machine learning and artificial intelligence. We view
converge, as they have this as inevitable, in part, due to the labor shortage previously discussed across developers,
common goals and utilize cybersecurity, and IT operations. The efficiency gains of keeping these teams uniform as well
common data sets; the idea as the ability to supplement overburdened parts of the development life cycle helps to
that their tools are not eliminate choke points and increase overall production. With security inherent in the
communicating is not application development life cycle, speed can safely be unleashed, with less worry about
sustainable, in our opinion. launching a vulnerable application into production.
We feel vendors in security, monitoring, and DevOps will continue to add automation to make
their integrations feel seamless to the end-user, allowing common data resources to be shared
for efficiency as well as preventing information asymmetry. We believe vendors who fail to
meet these challenges will be at a significant disadvantage as the pressing needs for
automation to support expanding environments increasingly weigh on decision-makers who
are taking a more holistic view of IT spend. As seen in the Exhibit below, based on our
interpretation of Gartner (“Survey Analysis: Enabling Cloud-Native DevSecOps” by Dionisio
Zumerle, September 13, 2021), the number two response in terms of “first choice” challenges
for adopting DevSecOps is that the current security toolset lacks automation.

Exhibit 56 - Challenges in DevSecOps
Source: Gartner “Survey Analysis: Enabling Cloud-Native DevSecOps” by Dionisio Zumerle, September 13, 2021
What are the benefits?

We believe the culmination of these trends should make companies vastly more efficient over
the next decade, helping solve the global talent shortage and creating more meaningful,
fulfilling jobs for people so they can focus on creativity and problem solving. As seen below,
the McKinsey report “A Future that Works: Automation, Employment, and Productivity” noted
that 60% of all occupations have at least 30% technically automatable activities.
Exhibit 57 - Percentage of jobs that could be fully or partially automated
Source: McKinsey Global Institute analysis
When thinking through the ROI, this equates to $2.7T in wages, which we feel will further
propel extensive investments in automation across the global economy.
Exhibit 58 - Wage impact of automation
Source: McKinsey Global Institute analysis

Autos: Software-enabled vehicles transform many industries

While electrification in transportation gets a lot of attention and certainly will continue to
inflect, we would argue this is widely appreciated. Further, while we do not mean to diminish
the benefits from electrification – decarbonization, lower cost to own/operate, a better driving
experience – ultimately, it is a change in what powers the vehicle from point A to point B. In
and of itself, electrification does not change the industry business model much – automakers
are still selling a unit. That is why we see a much larger potential change to the automotive
and ancillary industries from the software-enabled vehicle and unlocking the value from the
data such a vehicle can provide. Connected, software enabled vehicles can provide a better,
more personalized experience for the customer, but also have tangible economic benefits to
automakers, suppliers, dealers, insurance companies, tech players and other industries.
While electrification in
From a consumer perspective, the vehicle becomes an updatable device, much like
transportation is an
smartphones today versus the current static experience consumers have in legacy vehicles.
important and topical
Using over-the-air (OTA) updates, new and more advanced safety features can be pushed to
theme, we see a much
the vehicle. The consumer can choose customized digital “skins” for the displays or select
larger potential change to
certain vehicle performance upgrades – imagine a software controlled modulation to get more
the automotive and
horsepower or torque from the electric powertrain for that trip up to the mountains.
ancillary industries from the
software-enabled vehicle From an automaker perspective, this enables a shift from selling units to being able to sell
and unlocking the value more SaaS like, recurring revenue, higher margin services. Software based enhancements are
from the data such a vehicle zero marginal cost. Further, the connectivity with the customer moves beyond just the initial
can provide. unit sale to one that could be over the life of the vehicle. This creates a larger life-cycle
monetization opportunity for automakers. An increasing part of their revenue and profits
For example, automakers
could be tied to the size of the connected fleet, which should be ever growing, not just the unit
with access to richer data
sales in any given year that is more subject to economic cycles.
than insurance companies
could potentially offer an Having access to rich data could enable an improved insurance product. We believe this could
improved insurance allow some automakers (General Motors and Tesla for instance) to get into insurance. It’s
product. possible that the automaker could get significantly richer data from the vehicles than the
insurers considering they can use AI to analyze data from all the sensors (likely >100) on the
vehicle vs. insurance companies who only get cell phone or OBD port data, which is much more
limited. For instance, currently an insurance company may use cell phone data and figure out
a driver’s speed or braking tendencies and may interpret that as a “bad driver” data point. But,
using all the data on the vehicles, they may be able to interpret that as the safe driver decision
or a hard brake wasn’t their fault, and “reward” the consumer for safer driving. Likewise, they
can offer discounts for taking a higher-end active safety product or even offer dynamic pricing
based on driving behavior and usage. They can get better, quicker and more accurate crash
data.
The data on vehicles can also be very beneficial to fleets. Imagine how large logistic companies
can increase the efficiency of their operations interpreting the data that comes off vehicles.
Today, fleets buy third-party devices that provide limited data. If the vehicle is connected and
sensors and software are embedded and integrated, the data becomes much more valuable.
Now, they may know if automatic emergency braking (AEB) activated. However, with a more
connected embedded vehicle they will also know if it did not execute and an accident occurred
how close the system did come to activating. That can lead to system refinement, enhanced
safety and lower cost. The system will also be able to monitor battery degradation on electric
vehicles, which can guide usage cycles and lead to maintenance savings.

Autonomous vehicles would open up a whole new realm of data and monetization
opportunities
Autonomous vehicles will process incredible amounts of data relating to both the environment
and the consumer. From the environment perspective, remember the vehicle has a full and
rich sensor suite that is processing, in real time, the world around it. Information the vehicles
pick up about traffic, road conditions (need to repair) and curbside activity can be
extraordinarily valuable to many constituents including local municipalities. From a consumer
perspective, the autonomous vehicles will know a lot about the occupants – where they are
going and where they are coming from. You can imagine that this could lead to targeted ads
or even a store paying for your ride to their establishment – a relatively effective customer
acquisition cost. Autonomous vehicles can also free up time. There is no longer the need for a
driver to pay attention to the road. This could increase work productivity (think of a morning
work commute) but in many instances this could mean an emerging opportunity for media.
Passengers may want to spend time virtually socializing with friends or family (usage or
We envision a future where engagement on social media can rise).
a consumer could trade the
information the vehicle is The average vehicle trip time in the U.S. appears to be between 22 and 27 minutes (depending
gathering on the on the source). That appears to a good time for the average 30-minute show (ex-commercials)
environment and its but it is also possible new forms of entertainment and shows could emerge for this channel,
passengers in return for a similar to how media specific for the smartphone emerged. In a shared trip environment, this
lower cost for that vehicle. can even be social with the operator pairing up passengers who are watching the same show.
In a more personally owned autonomous experience or in a longer autonomous ride-hail ride,
movies would be a possibility. What is especially intriguing is using the vehicle to make the
media more engaging and enhancing the experience (using augmented reality or for instance
“rocking” the car to simulate a vehicle chase scene). The vehicle could also recommend or
show specific, thematic entertainment based on the vehicle destination or even serve as a
“tour guide” during site seeing. Think of the vehicle as the ultimate Disney ride for the real
world.
The onus of course will be on figuring out the right data, the signal from the noise, and thinking
of ways to monetize that information. At the extreme, think about how a consumer could trade
the information the vehicle is gathering on the environment and its passengers in return for a
lower cost for that vehicle. While this likely still has a ways to go given the large upfront cost
of manufacturing a vehicle and the timeline of the return on that data, it could become more
of a reality over time.

Aerospace & Defense: There’s a new class in Top Gun

We believe we are at a threshold when it comes to the military’s use of drones and robotic
systems. The marriage of artificial intelligence (AI) and unmanned technology is opening up
new opportunities while creating new challenges. One example of this is the opportunity to
use drones as loyal wingman in support of manned aircraft. There are several programs today
looking to incorporate drones into missions in support of manned aircraft, especially fighter
aircraft. A second example involves swarming technology.
The loyal wingman opportunity is actively pursued in the U.S. by both the U.S. Air Force and the
U.S. Navy. One of the more visible programs in the U.S. is the Skyborg program, one of three
Vanguard programs managed by the Air Force. As part of the Skyborg program, contracts have
been awarded to Boeing (BA), General Atomics (private), and Kratos Defense & Security. Boeing
is developing the Boeing Autonomous Teaming System (BATS) aircraft in Australia, while Kratos is
offering its Valkyrie aircraft. These unmanned aircraft are intended to support a range of missions,
and the ability to “partner” with 5th generation manned aircraft, such as the F-35, is dependent on
the AI technology these unmanned systems will be able to deploy. The image below shows a
Kratos XQ-58A Valkyrie aircraft flying in formation with the F-22 and the F-35 aircraft.
Exhibit 59 - Loyal wingman test flight with fighter aircraft
Source: U.S. Air Force Research Labs
In Europe, the U.K. is funding loyal wingman development efforts through its Future Combat
Air Systems Technology Initiative (FCAS IT), which has provided a development contract to the
project Mosquito team, which is led by Northrop Grumman (NOC) and Spirit AeroSystems
(SPR). There are similar efforts underway in other European countries and with the Russian
and Chinese militaries as well.
There is also significant effort on unmanned swarming systems, which are made possible
through the use of AI. Swarming drone systems refer to multiple systems deployed with the
objective to autonomously alter their behavior based on communication with one another,
independent of human interaction. The fact that the “swarm” will be able to communicate and
then alter its behavior implies a degree of artificial intelligence that is unique in today’s
defense systems. There are a number of swarming programs in the U.S., including the Air
Force’s Golder Horde program and the DARPA Gremlins program. Swarming technology can
be applied to very small drones or to larger systems.
Med Devices: Artificial Intelligence & Autonomous Robotics

Artificial Intelligence and autonomous robotics is the future of surgery. One of the most
Surgical robotics is still in its significant innovations in medical devices has been the advent of robotics. The field is not new
infancy with respect to scale as the da Vinci Surgical System became the first surgical robotic platform in 2000 to be
and scope; we believe commercially available in the United States indicated for use in general laparoscopic surgery.
surgeries will eventually be Despite that, robotics is still in its infancy with respect to the scale and scope. It appears to be
done by autonomous robots a moonshoot opportunity today, but eventually we believe surgeries will be done by
controlled by artificial autonomous robots controlled by artificial intelligence (AI) algorithms that receive input from
intelligence (AI) algorithms an array of visual and haptic sensors. In fact in 2016, Shademan, et al. reported complete in
that receive input from an vivo, autonomous robotic anastomosis of porcine intestine using the Smart Tissue
array of visual and haptic Autonomous Robot (STAR). The procedure was conducted in a highly controlled experimental
sensors. setting, but outperformed human surgeons in a series of ex vivo and in vivo surgical tasks.
Notably, it demonstrated the clinical viability of autonomous soft-tissue surgical robotics for
the first time.
The autonomous level of healthcare robotics is in its infancy, with much room to grow.
Autonomy refers to the ability to perform an intended task without human intervention. There
are six levels of autonomy in surgical robotics that vary based on the degree of human
intervention the system is able to trade. For example, da Vinci is the most widely used system
globally, but is a handler-agent robot that is completely dependent on human control. Robotic-
assisted surgery or RAS (LoA1) is utilized across several specialties today – urology, gynecology,
and general surgery. That said, there is significant room for adoption as penetration remains
significantly low at less than 2% globally. RAS is accompanied by enabling technologies such as
tool and eye tracking, tissue sensing, augmented reality (AR), and haptics. We believe there
has been progress made in task-level autonomy (LoA2) such as suturing, which involves needle
insertion and knot typing, but it is not widely commercial yet. The most notable supervised
suturing has been STAR, which has a KUKA LBR arm with seven degrees of freedom and a
custom suturing tool.
Exhibit 60 - Level of Autonomy (LoA) in Healthcare Robotics
Source: IEEE Robotics & Automation Society
Robotic surgery has advantages that should minimize surgical variations and make it the
standard of care over time. Robotic surgery is minimally invasive and has significant benefits
over open surgery, which include shorter hospitalizations, reduced pain and discomfort, faster
recovery time and return to normal activities, smaller incisions that may result in reduced risk
of infection, reduced blood loss and transfusions, as well as minimal scarring. For the surgeon,
robotic surgery has the benefit of greater visualization of the surgical field, enhanced dexterity
that eliminates issues such as hand tremors, and surgical precision that is unmatched by
human capability. Due to these benefits, we believe robotics will standardize surgery across
care settings and surgeon capabilities.
Robotic surgery is at an inflection, but there is a multi-year runway for growth aided by
technology advancements. By our estimate, 1.5–2.0 million surgical robotic procedures are
We believe robotics will performed annually and +9 million have been performed since 2010 alone. The current
standardize surgery across addressable market for surgical robotics is 6 million procedures, which represents those that
care settings and surgeon can be addressed with existing technology. Industry leaders such as Intuitive Surgical expect
capabilities. the addressable market to expand to 20 million procedures over the next few years, but we
would expect the market to expand further over time aided by technological advancements.
The field of robotics will continue to expand beyond soft-tissue surgery. Robotic surgery is
being adopted not only in soft-tissue surgery, but also in hard-bone surgeries such as in knees,
hips, and spine. Companies operating in the former are Intuitive Surgical Inc., Medtronic PLC,
and CMR Surgical to name a few, while those operating in the latter include Stryker
Corporation, Zimmer Biomet Holdings Inc., Smith & Nephew PLC and Globus Medical Inc..
Industry reports and recent checks suggest that demand has strengthened in recent quarters
suggesting that we are at an ‘inflection’ point in procedures that the technology is currently
indicated for. We have also seen applications benign prostatic hyperplasia (BPH) or enlarged
prostate (Procept Biorobotics), and diagnostic areas such as bronchoscopy (Intuitive Surgical,
Johnson & Johnson).

Healthcare: Accelerating drug discovery

Expect collaborations between tech and biopharma to continue into the next decade. With
both tech and biopharma as prominent high-growth industries, we are seeing greater
integration of the two, particularly in the world of AI – something we expect will continue in
the coming years. Investment in AI drug development has steadily increased, with $2.1B in
capital raises in 1H21, and a total of over $11.8B in total invested capital, which we believe
points to an area of continued focus for investors, and one that we would expect to grow.
Large biopharma players are also deploying resources towards this trend, with Gilead being
among the first to sign an AI drug discovery deal in 2019 with a three-year, potentially $1B
We are seeing greater partnership in NASH with Insitro; other large-caps to pen deals include Pfizer, Bristol-Myers ,
integration between tech Bayer, and Roche/Genentech. Big tech names are getting involved too, with Microsoft and
and biopharma, and despite Novartis collaborating since 2019, and NVIDIA Corporation working with AstraZeneca and
the growing proliferation of Schrodinger Inc. on molecular optimization and reaction prediction for novel molecule
AI to guide drug discovery, synthesis.
we note most compounds
remain in early stages of There are high expectations for AI-based drug development, though validation likely years
preclinical or clinical work. away. Despite the growing proliferation of AI to guide drug discovery, we note most
compounds remain in early stages of preclinical or clinical work. Even work speeded by AI,
We also remain cognizant such as a kinase inhibitor developed jointly by Bristol-Myers and Exscientia PLC (which has 3
that the actual advantages molecules in ph.I), still took 11 months to be identified, and though impressive vs the ~3 years
AI may bring may be more we estimate the average process may take, it must still go through the traditional and rigorous
incremental than in other drug development pathway (which could take the better part of a decade). We also remain
fields. cognizant that the actual advantages AI may bring may be more incremental than in other
fields, where drug discovery screens already leverage automation and fairly advanced
computational biology to maximize hits. Further, bleeding-edge technologies such as ASO,
gene therapy, or gene editing technologies will likely benefit less from advancements in AI
than more traditional small molecule approaches, which have typically faced a throughput
bottleneck.
Clinical stage AI can also lead to missteps, such as Epic System’s sepsis AI algorithm potentially
worsening patient outcomes. We estimate that a year saved during preclinical development
could save biopharmas in the order of $1–3M per program, along with any competitive
advantage they gain. That being said, we note there are potential AI solutions across drug
development, with companies such as Deep Lens working with Lantern Pharma Inc. to
accelerate clinical trial enrollment and patient matching with advanced AI algorithms; a year
at the clinical stage may cut costs by $20–100M per program. Ultimately, we believe further
collaboration between tech and biopharma is worth pursuing, but caveat that biological
systems are complex and difficult to model, and we look to the late 2020s to benchmark the
true impact of AI-fueled drug development, as today’s early stage compounds would be
approaching pivotal readouts.

Healthcare Technology: Improving financial health with a digital workforce

Approximately 5–10% of individuals employed by health systems are tied to the revenue cycle
process, which includes all of the steps doctors and hospitals have to take to get paid for their
work. Steps range from collecting a patient’s insurance information before the visit all the way
to final billing and collections. This is not a simple process; there is a wide range of healthcare
services and a vast network of payors, including both patients and insurers, with different and
dynamic policies and reimbursement rates. As a result, this tends to be a very labor-intensive
and often redundant process that providers historically have been poor at managing
themselves (which results in providers chronically spending too much to collect too little).
These issues are further compounded by tight labor markets in the U.S. and rising wage
inflation.
An increasing number of provider systems have invested in both automation and patient
experience – the goal being to not only reduce the cost of performing the various revenue
cycle functions, but also to improve the customer experience. Early investments included
We believe AI could robotic process automation (RPA), which is used to address simple tasks. Now, more health
materially improve the systems are deploying additional technologies like artificial intelligence, machine learning,
efficiency of the healthcare optical character recognition and natural language processing – the combination of which is
system; approximately 5– helping to automate much more complex processes, enabling organizations to further reduce
10% of individuals their reliance on labor.
employed by health systems
are tied to the Pre healthcare visit – Where are some opportunities for automation?
administratively heavy  Scheduling. An effective way to streamline the scheduling process is to enable patient
revenue cycle process, self-scheduling. Facilitated by RPA on the back end, patients can reserve a spot on a
which includes all of the provider's calendar that updates in real time. In many cases, providers are unable to see
steps doctors and hospitals each other's schedules, which means there can be a fair amount of manual effort to
have to take to get paid for coordinate a referral appointment. By having an integrated platform or RPA that can
their work. speak to different systems, the scheduling can largely be automated to accommodate the
patient's schedule.
 Registration. While the entire registration process can be automated from the provider
standpoint, the automation starts at the sub-process level. For example, registering a
patient requires gathering data from disparate sources and populating a registration
template. Each part of the retrieval process can be completed via RPA.
 Eligibility verification / Determination of patient financial responsibility. Similar to the
Medicaid example, this often requires searching a payor website and/or reaching out
directly to the payor to verify eligibility for benefits/coverage. RPA can be used to scan
Medicare and Medicaid eligibility websites to determine eligibility on behalf of the
patient. For example, RCM vendor nThrive claims that its software is able to save providers
an average of 1.8–3.0 full-time employees (FTEs) worth of effort. With a clear explanation
of what will be covered, the providers can then provide patients with accurate cost
projections.
Post healthcare visit – Where are some opportunities for automation?

 Coding. Following a visit, a medical coder will create a 'superbill' that involves the
assembly of both provider and patient information as well as procedure and diagnoses
codes specific to the visit. There are tens of thousands of codes that might apply to each
component of the visit. Coders have historically used actual code books or searched for
applicable codes in a database, which is a very manual process (and does require some
knowledge to account for the nuance of each visit). Intelligent automation can help review
text and make coding recommendations that coders can sign off on. Essentially, this is a
way to augment the coding capacity of a human employee.

 Pre-submission claim generation and auditing. The superbill becomes the foundation for
generating a medical claim. It contains much of the same data, but must be formatted to
meet the appropriate payor billing requirements. Automation can be used in sub-
processes requiring data assembly while ML can help audit the final claim for
coding/billing compliance and address any gaps in data, inaccuracies, potential ineligibility
or even duplicate filings. This final scan before submission is a critical part of minimizing
claims denials.
 Prior authorization (PA). When a physician orders medication, additional testing or
procedures, the physician's office immediately begins the PA process to find out whether
the payor will pay for it. As previously noted, this is a highly manual process that can take
more than week for the payor to reject or approve the course of treatment. If denied, the
appeals cycle can take more than a month. Intelligent automation can help initiate the PA
process, assemble relevant forms and documents in the proper format based on historical
data, and track authorization to completion.
After claim submission – Where are some opportunities for automation?

 Billing statement preparation. Once the insurer's payment responsibility has been
determined, the provider can prepare the patient's billing statement. This typically
includes an itemized cost of each service and the portion that is covered by insurance.
Assembling the proper data from each source and delivering the bill primarily consists of
routine sub-tasks that are prime candidates for automation.
 Patient communications. After a bill is released to the patient, there is often follow-up
correspondence that takes place. Patients tend to ignore the first bill, so there are
additional copies that are typically sent. Further, patients may call or e-mail with
questions, comments or complaints. Re-sending digital or hard copy bills can be easily
automated, but some follow-up customer service items can be addressed with ML and
natural language processing that can read emails or direct calls efficiently to the
appropriate channels.
 Denials management. When a payor denies a medical claim, there are two feasible next
steps: (1) spend time figuring out why and if there is an easy fix, then resubmit; or (2)
move on and take the loss. While there are some steps in the process that can be
automated in terms of the tracking process, much of the opportunity lies in the ability to
effectively optimize the balance between potential revenue recovery and cost of re-
submission. ML can be used to help providers make manage/prioritize those denials and
utilize manual resources more efficiently.

Exhibit 61 - Simplified denials management workflow
DENIALS
TRACK REJECTED CLAIM STATUS
MANAGEMENT
PROCESS PRIORITIZE
CLAIM REJECTED
REJECTED CLAIM REJECTED CLAIMS
CLAIM CLAIM CLAIM

CLAIM ACCEPTED
GENERATION SUBMISSION ADJUDICATION
CLAIM DENIED
Source: RBC Capital Markets
Why is this so meaningful for providers?

We estimate 5–10% of health system employees are tied to the revenue cycle process, which
means that a significant investment in time and money is required to recruit, train, and retain
talent. Therefore, maximizing efficiency of these processes can have a meaningful impact on
the profitability of a health system, which more often than not operates on very thin margins.
We expect to see more Further, with tight labor markets, health system vaccine mandates leading to staffing
hospitals, health systems, shortages / rising wages, and increasing competition for patients leading to more focus on
and revenue cycle vendors creating more consumer-friendly experiences, the value that providers can derive from a well-
accelerate adoption of managed revenue cycle continues to grow.
these AI technologies as
It is also important to note that automation is most often not about eliminating employees,
software costs come down
but getting better leverage off an existing employee base and avoiding additional hiring. This
and billing complexity/labor
applies to outsourced vendors such as R1, who estimates it has avoided the cost of 1,200–
costs continue to rise.
1,500 more FTEs, as well as institutions like the Moffitt Cancer Center that (per a recent
company presentation) has automated the equivalent of 200 full-time employees. This is
substantial compared to the 500 FTEs currently in a revenue cycle function and the ~7,000
across the system. We expect to see more hospitals, health systems, and revenue cycle
vendors accelerate adoption of these technologies as software costs come down and billing
complexity/labor costs continue to rise.

Energy & Utilities: Digitization and AI in oilfield services

The benefits of digitization and AI in oilfield services are becoming clear
Digitization drives efficiencies, which should increase E&P productivity and facilitate
emissions reductions. We believe AI capabilities will be needed to reduce emissions in oil and
gas operations. For example, remote operations mean fewer trips required to the wellsite to
check valves, monitor production levels, and perform routine maintenance.
 Margin enhancement: Today, digital product offerings provide an opportunity to

differentiate from asset-heavy segments of oilfield services while expanding margins
through high-value offerings and reducing costs. Tomorrow, AI should play a role in
improving economics of new energy sources and drive the next leg of the energy
transition.
 Labor management: The oilfield service segment has traditionally added personnel during
upcycles and shed personnel during down cycles. The increasingly fast nature of oil and
gas cycles has left many workers scarred from frequent layoffs with the result that many
have exited the industry. Efficiency of personnel will reduce the risk of labor shortages
and the cost of severance during down cycles.
Current and future uses for artificial intelligence in oilfield services

Oilfield service providers are continuously rolling out technology offerings. Many of these
initiatives are direct partnerships with producers and technology firms.
Exhibit 62 - Service providers ramping up on AI and digitization efforts
AI enablement
Category
Today Future
• Oil & gas operations are remote, some • Advancements in communications can
connected with satellite, LTE bring equipment on-line to a centralized
Connections can be expensive and location
In the future, we expect Data Analytics spotty in less-established regions • Increased well-accuracy and proficiency
continued advances in data • Cloud enablement increasing, but with analytical software
analytics, increased asset remains relatively early-stage • Remote operations centres support
automation, and enhanced operations and diagnostic capability
equipment health Hard assets • Rig systems increasingly perform • Increased asset automation reduces the
monitoring, reducing labor automation & repetitive rig tasks number of personnel required on-site
management utilization • Automated rig prototypes can automate
(equipment) pipe tasks, personnel still required on rig
considerations and driving
efficiency and margin • Maintenance activities are highly • Equipment health monitoring and
improvements for oilfield Maintenance weighted to reactive & time-scheduled analytics shifts the balance to highly
services. management versus predictive predictive, improving asset utilization,
reducing downtime & saving costs
AI partnerships and data analytics

Increased connectivity should underpin enhanced oil and gas value. McKinsey & Co. recently
estimated advanced connectivity could result in an additional $250B of upstream value by
2030. Improvements are projected to come from a mix of existing infrastructure and
proliferation of low-earth orbit satellites and 5G networks. Increased connectivity allows
service providers to improve remote offerings, data collection, and enhanced analysis.

Technology partnerships to drive next leg of AI capability. Baker Hughes, Shell, C3 AI and
Microsoft have launched the Open AI Energy Initiative (OAI). The OAI provides a framework
for energy operators, service providers, and independent software vendors to offer
interoperable solutions including AI and physics-based models, monitoring, and prescriptive
actions. Baker Hughes’ BHC3 AI suite has several applications for increased productivity across
upstream applications designed to reduce asset downtime, maximize performance, and
improve supply chain efficiency.
Hard assets enabled by AI

Equipment is getting smarter. Schlumberger sees autonomous drilling as a journey with five
stages, ranging from assisted operation to full autonomy. Many drilling operations today rely
on some degree of assisted operation or automation, though many applications still require
feedback loops to/from directional drillers. In an offshore environment, the company recently
drilled a section of a fully automated orchestration of both surface and downhole equipment
Offshore technology enabled by its digital platform. Offshore technology typically leads onshore technology and we
typically leads onshore expect to see enhanced automation to onshore rigs in the coming years.
technology and we expect
to see enhanced Exhibit 63 - Automated drilling rigs require robust data and system support
automation to onshore rigs
in the coming years.
We also see further AI

development reducing the
personnel required in the
field, including remote
operations.
Source: Schlumberger
Rigs now automated, further advances likely to increase efficiency. Nabors has built the
world’s first automated drilling rig, the PACE®-R801. The system has robotic pipe-handling
capability, which removes personnel from the most dangerous part of the rig floor, known as
the “red zone.” The rig is enabled by a network of control systems, which help keep the well
on target and manage several key drilling metrics including weight on bit and rate of
penetration. The rig still requires the same amount of personnel as a normal rig, but the duties
change. In the future, we see further AI development reducing the personnel required in the
field, including remote operations.

Exhibit 64 - Automated drilling rigs require robust data and system support
Source: Company reports
Maintenance management – less reactive, more predictive

OFS is helping energy and non-energy firms be more proactive and less reactive. Non-
productive time is one of the largest sources of inefficiencies in the oilfield services industry.
On the other hand, hours-based maintenance may result in over-capitalization of assets.
Increasing predictive maintenance across the oil and gas value chain will be accretive to service
provider margins through better asset utilization. Baker Hughes is building out its strategic
investment in Asset Performance Solutions (APM) including critical asset monitoring and has
recently expanded its reach to Balance of Plant with an investment and strategic partnership
with Augury. Baker Hughes sees the APM market growing at a 10.1% CAGR through 2026,
making it a significant growth opportunity.
Exhibit 65 - Baker Hughes sees condition monitoring in industrial settings as a key growth
area
Source: Baker Hughes

Predictive analytics are like an equipment ECG. Historically, maintenance inspection and
failure history would be tracked manually, sometimes by individual mechanics. Pressure
Pumper, Liberty Oilfield Services is digitizing its operational data through condition-based
sensors, using predictive analytics to improve equipment reliability and reduce maintenance
costs. The company’s cost modeling represents a 2–3% cost-avoidance reduction in opex.
Predictive maintenance modeling is gaining traction across the industry, but we believe is in
relatively early stages.
Exhibit 66 - Pressure Pumping firms are using predictive analytics to better monitor assets
Source: Liberty Oilfield Services, RBC Capital Markets
Risks and potential issues

Partner risk: Oilfield services firms seeking to partner with incumbent technology companies
to build out AI offerings may need to demonstrate both commitment to tangible greenhouse
gas emissions reductions and progress towards the energy transition. We believe firms have
made strides towards both, though progress timelines may need to be accelerated.
Slow adoption by customers: Capital scarcity may deter oil and gas services companies from
investing in new technology.
Government regulation: Government regulation may play a role in slowing adoption and
reducing benefits of AI. Specifically, potential taxation to compensate for potential job losses
could slow overall adoption of AI initiatives.

Mining: “Intelligent mining” – AI and machine learning

Technological advances by major mining companies – via joint research studies with
universities, original equipment manufacturers, and in-house development – have focused on
robotics, big data management, AI and machine learning. This has been labelled in broad terms
as “intelligent mining.”
Mining companies make decisions that impact production, safety and profitability every day.
These decisions involve trade-offs, and given the scale usually involved in mining operations,
sub-optimal decisions can have a large impact – be it positive or negative. Machine learning
has been used to provide industry valuable insights through the whole value chain (from mine
to port) in real time, using algorithms that learn and generate desirable behaviors and
The mining industry’s cost recognize patterns from input data containing relevant examples. We expect these uses to
base has been facing become of increasing importance for the mining industry over the years to come.
upward pressure due to
various headwinds; we Generally speaking, the mining industry’s cost base has been facing headwinds, including
expect AI and machine energy costs, higher strip ratios, more difficult ore bodies, lower grades and more complex
learning to become lithology, increasing labor costs, input costs, higher government take/royalties, longer haul
increasingly important tools distances, and frontier regions for exploration (to name a few). These challenges have led
to boost productivity over mining companies to focus heavily on productivity (without losing flexibility); specifically, the
the years to come. performance of mines, processing plants, transportation, and exploration. Below, we provide
an overview of some of these key areas of focus for future advancement.
Autonomous vehicles and transportation

One of the largest and most evident industry leading initiatives has been autonomous or semi-
autonomous vehicles and transportation. At the mine site, autonomous and semi-autonomous
vehicles (loaders and trucks) have improved fuel consumption, improved driver behavior,
reduced performance variance, all impacting the volume of material moved and the cost of
doing it. For a select few miners, who own their port and rail, this is now being applied to all
parts of the chain.
Specifically for blasting, companies have been able to assess the strength and characteristics
of orebodies/rocks while drilling, and subsequently test, apply and tailor different drill hole
patterns, explosive types and blast design to ensure reliable and efficient rock fragmentation.
The increasing ability to apply such learnings and systems to complex and diverse commodities
and operations has also reduced manual mining and blasting, which is considered to be higher
risk and lower efficiency.
Remote operation
Another key initiative is remote control centers, which allow trained staff to operate mine
equipment, vehicles and systems remotely from town centers, from hundreds to thousands of
kilometers away. The benefits of the continuous mining system while operating remotely has
resulted in reduced operating costs and better productivity, as well as better quality of working
life. This reinforces the notion that intelligent mining can respond to the challenges that the
mining industry wishes to address.
Processing enhancements
With big data and intelligent mining came predictive maintenance. Algorithms are used to
identify and highlight indications of failure (be it change in wear patterns, sound, heat
generated during production, previous observed failures, historical maintenance, and
weather). These algorithms would detect failures ahead of time, allowing mining companies
to re-schedule and plan maintenance, order / stocking of parts, change ore feed and any other
inputs as needed. This has resulted in higher utilization rates and hence increased throughput
and reduced the impact of planned maintenance, a trend we expect to continue as adoption
increases across the industry.
Tools such as AI and optical ore sorting are being put to work already at companies like Anglo
American, which has started using AI and optical sorting to pre-sort low-grade ore from going
into the plant and is currently rolling this out at multiple operations. With processing, similar
to predictive maintenance, the measuring and assessment of key variables across processing
plants (be it a simple dry screening operation for iron ore or a complicated poly metallic
processing) has led to optimization of yield by tinkering and changing physical or chemical
variables. Higher yield equals to higher output and lower unit costs. Recently, there has also
been the use of small pilot plants, which use machine learning to try to address specific
processing problems at a small scale prior to moving to commercial volumes. These have led
to more efficient deployment of capital and less downtime, once again pushing the boundaries
of plant efficiency and uptime.
Exploration
Exploration is also increasingly utilizing machine learning and AI. A key example of this is the
reclassification of millions (if not billions) of geographical data points to groups, and the use of
As technology continues to machine learning to highlight signatures from existing mines and discoveries, which is then
increase its influence in the used to predict and highlight where to explore next. This has allowed more targeted
mining sector, we expect exploration programs and reduced time in the field.
more jobs to become
increasingly tech-focused, New technology is being used and rolled out in the mining industry all the time, with innovative
including more crossover ideas central to modern mining. We have also seen this manifest in soft skills, with more and
between traditional mining more jobs becoming increasingly tech-focused. Not only have new roles been created, but also
roles such as engineers and new crossover hybrid positions between the traditional mining roles such as mining
geologists, data scientists engineering & geology and data science & software developers. As technology continues to
and software developers. increase its influence in the mining sector, we see a future with increased specialization in such
fields.
Overall, through the whole mining value chain, machine learning, AI and innovation is
becoming more integral to help miners improve and hone their competitive advantages (be it
block caving, running infrastructure, low cost positions, exploration, innovative processing,
etc.). Given that most structural cost headwinds that we referred to earlier continue to
strengthen, we expect technology innovation and use of machine learning will be of increasing
importance over the years to come.

Datacenters: The AI data storage conundrum

The computing needs of AI will drive solutions for data storage, security and sovereignty, while
requiring a large buildout of compute and storage infrastructure. Companies are exploring the
possibilities of edge compute in order to provide high-quality connections closer to the end
user, ensuring better performance. However, to make this vision a reality, companies need to
invest in edge data centers and other infrastructure that allows them to manage large
quantities of data.
Big data and the use of AI to recognize trends will require additional capacity for data storage.
The largest issues with data storage are cost and sovereignty. Companies will often discard
data because of the high costs associated with keeping and transferring the data once stored,
while governments debate over which jurisdictions own and have access to data.
In order to solve the cost problem, companies are increasingly focused on hybrid solutions,
including a mix of cloud and on-premises storage for data. The increasing prevalence of
sensors and compute and storage solutions that have lower costs and require less power will
allow edge to serve a more crucial role in processing and storing data locally. In order to meet
the demand required, companies will need to continuously build out more capacity for
storage.
Edge will also play a pivotal role in resolving issues with data sovereignty. Data exists in a highly
mobile state, which makes it difficult to determine who owns the rights to the data. With edge
compute and storage, a company can make definitive claims regarding where the data exists
and how it was collected. This will reduce data sovereignty issues as companies and
governments will be able to understand when the data is shared and the source of the data.
Edge will also help from a safety perspective, as data is less exposed to cyberattacks when it
stays within a certain storage unit. Less travel and better defined boundaries will allow
companies to pinpoint the source of a cyberattack as well as reduce the frequency of
cyberattacks through less travel.

Hybrid Living
Table of contents
Hybrid Living – Introduction ............................................................................................. 122
Software: The future of work ........................................................................................... 124
Education: The early innings of a total transformation ..................................................... 127
Gaming: Let’s have some fun ............................................................................................ 129
Internet: Metaverse – The story of the ultimate walled garden ....................................... 131
Internet: Policing the online world ................................................................................... 133
Manufacturing: Factories of the future ............................................................................ 136
Energy: Oilfield Services…from home? ............................................................................. 137
Medical devices: The world of smart implants ................................................................. 138
Healthcare Technology: Virtual health is the future ......................................................... 140
Real Estate: Digital emergence could change…everything ................................................ 149
Restaurants: More digital on the menu ............................................................................ 151

Hybrid Living – Introduction

Hybrid Living: Our environment is increasingly becoming inclusive of our physical space as well
As the lines between the as our digital world. As augmented and virtual reality continue to become more user friendly
physical and digital world and easier to access, the lines between the physical and digital will continue to blur. This will
continue to blur, we expect have significant implications on how we interact as a society, accelerate workplace
significant changes in productivity, create new opportunities to engage consumers and customers, as well as
societal interaction, become the catalyst for entirely new business models.
workplace productivity, and
In 2017, IBM made headlines for ending its decades-long remote work policy, and calling back
opportunities to engage
into the office the 40% of its 386,000 employees who were working under that policy. Around
consumers, serving as a
the same time, other major employers, including Aetna and Yahoo, had also ended remote
catalyst for entirely new
work policies that had enabled the companies to save money on office space, in the interest
business models.
of better collaboration. Fast forward to March 2021 and IBM’s CEO has publicly stated that
80% of the company’s employees will work in hybrid remote roles after the pandemic. The
pendulum of how we live and work has swung in different directions throughout time – from
agrarian and rural to industrial and urban to now in the technology age. The ubiquity of
technology and its adoption across age groups has ushered in an era of hybrid living.
What is driving this acceptance and uptake of hybrid living? Was this an inevitable change that
the COVID-19 pandemic accelerated like other trends? Looking at the percentage of U.S. adults
who say they use the Internet, broken out by age, in 2020, the 18–29 cohort is at 99%, the 30–
49 cohort is at 98%, and the 50–64 cohort is at 96% – lagging behind them is the 65+ group at
75%. Except for the 18–29 age group, all groups saw an uptick of usage between +10–30pts
since 2010.
Millennials were the first generation to grow up both in and out of the Internet age; their
generation and the generations thereafter are extremely comfortable with technology as a
part of everyday life, rather than as something separate and apart from real life. In fact, some
studies have shown that technology is now so ingrained in daily life that the smartphone rivals
the home as the most important place for consumers. In fact, by 2017 more than one-third of
Americans lived in a household with three or more smartphones according to Pew Research.
By 2020, U.S. households had, on average, ~10 connected devices in the home.
A survey conducted by Strategy Analytics in 2019 found that more than 54% of households
own at least one smart home device (speakers, thermometers, security, light bulbs, etc.).
These frequent and repeated interactions with technology on a daily basis have made
consumers more comfortable than ever with technology, blurring the line between online and
offline.
Younger generations today are already more comfortable creating online communities and
living a significant portion of their social lives online. An area where this is most prominent is
in the gaming community. Fortnite, an online video game created and launched by Epic Games
in 2017, had over 125 million players in less than a year, and had more than doubled this by
May 2020 to over 350 million players.
It is possible this comfort with socializing online was part of the driving force behind
millennials’ rejection of nightlife culture in the 2010s. The phenomenon of “cocooning” has
been observed across multiple survey results; in a 2016 survey, YPulse found that more than
70% of millennials and teens would rather stay home than go out on the weekend. In fact,
across all age groups, a majority of respondents said they would rather stay home than go out
on a Saturday night. The same survey found that over 80% of 21–33-year-olds would rather
give up drinking for a week than give up their phones.

The COVID-19 pandemic only accelerated these trends, which were already quite prominent.
Following more than a year of spending more time at home (and investing in their homes) and
adapting to a virtual environment, consumers are more comfortable than ever living a hybrid
life. In a 2020 survey, 70% of consumers said they would prefer to see a first-run movie as a
digital rental at home than in a theater if both were available at the same time for the same
price.
The hybrid lifestyle has also taken a stronghold with daily life beyond just entertainment. At-
home exercise equipment must be not just functional but interactive, engaging, and provide
an online community of support. The success of Peloton has been the company’s interface,
which “gamifies” use of the bike, providing “badges” for various accomplishments and
milestones (streaks of use, number of classes, trying to new classes, themed classes). The
company also boasts a strong online community, with groups forming and finding each other
via hashtags and large online communities; one such community centered around strength
classes on Peloton’s app “hardcore on the floor” boasts almost 250,000 members online. We
see similar dynamics with other modern products that build a community around them,
including Traeger, a grill company.

Software: The future of work

Of course, we cannot talk about the hybrid lifestyle without discussing hybrid work and its
implications. Prior to the COVID-19 pandemic, only about a quarter of U.S. workers worked
from home with regularity. Data shows those workers tended to be more senior and in
managerial positions. At the peak of the pandemic, nearly 70% of the workforce was working
from home (as were the vast majority of the school age children, learning from home)—a
number that Gallup estimates at ~100 million remote employees.
Exhibit 67 - During the peak of the pandemic, ~70% of the U.S. workforce was doing some
level of remote work
Source: Gallup. RBC Capital Markets
As the majority of Americans received vaccinations and mobility returned, the number of those
working from home exclusively fell, but those with some level of working from home did have
some stickiness to it. Similar to the dynamic of consumers sticking to cooking habits they
Similar to the dynamic of
learned during the pandemic, we expect a strong desire for flexible work to continue,
consumers sticking to
especially among white-collar employees.
cooking habits they learned
during the pandemic, we According to Gallup, over 90% of WFH employees said they want to keep their workplace
expect a strong desire for flexibility post-pandemic, and over half preferred a flexible arrangement. Over 50% of fully
flexible work to continue, remote and nearly 40% of hybrid workers said they were extremely or somewhat likely to leave
especially among white- their jobs over lack of remote working options.
collar employees.
The consequences of remote/hybrid work would have tremendous implications for population
centers. While we do not expect all the office workers of New York City and San Francisco to
turn to an agrarian lifestyle, the possibility for workers to decouple from coastal cities could
slow or reverse over 200+ years of urbanization trends in America.
The implications for such a shift in the United States cannot be underestimated. For example,
what happens to electoral politics and the balance of power? What happens to major city
centers with large budgets should a large share of the tax base exit? What happens to the
value of both personal and commercial property that got its value for being in proximity to

these places? What are the implications for the environment without the daily commute
(which has grown ~25% in the past 40 years)?
How we see the future of work playing out from here

We believe the future of work is hybrid but "hybrid work" can manifest in different ways. We
outline three different hybrid work models:
true hybrid work – employees work in the office 2–3 days per week and remote the
remaining 2–3 days;
fully remote – offices exist in this model, but there is no requirement for employees to be
in the office consistently; and
virtual-first – most employees should work from home most of the time, but teams are
encouraged to use offices for tasks that require in-person collaborative group work.
All these models require businesses to re-imagine operating models for people, places, and
processes, and, importantly, the technology required to support these future operating
models. Alongside smart speakers, AI-infused webcams, and a number of different hardware
devices adapted for hybrid, we believe software plays a critical role in supporting the future of
hybrid work.
In our view, virtual meetings are here to stay despite employees who are experiencing
“Zoom fatigue,” only now businesses need to adapt their video-conferencing solutions for
hybrid work scenarios. We see a number of exciting technologies surfacing from video-
conferencing vendors (Zoom, Microsoft) in order to enable hybrid meetings, such as
We expect there to continue interactive whiteboards (Zoom announced at Zoomtopia, joining Microsoft’s Miro, among
to be new, innovative others in the space), Microsoft’s fluid components technologies, interactive webinars, and
technologies built for both new layout modes catered to hybrid meetings (meaning there are people both physically and
internal and external digitally attending a meeting simultaneously). Microsoft and Slack are also testing push-to-talk
communication / features into their platforms as well as push-to-video (short video-based messages). In
collaboration in order to addition, we believe business travel will always remain depressed relative to pre-pandemic
support hybrid work levels and a significantly greater share of meetings (including internal and external) will be
models. done virtually. We expect there to continue to be new, innovative technologies built for both
internal and external communication/collaboration in order to support hybrid work models.
Where could we see the future of virtual meetings? Mixed reality. We believe mixed reality
(MR) could drive the next evolution of virtual/hybrid meetings and in general have an imprint
on the future of hybrid work in the long term. Microsoft’s keynote at Inspire brought mixed
reality to the forefront with a demo of Spatial Anchors, an early-stage product for multi-user
mixed reality experiences where teams in different geographic regions can collaborate in a
shared virtual experience leveraging holoportation, logographic sharing, and visualization. This
particular use case of mixed reality remains far from being ready for widespread use case but
we think it will be an important market to watch develop with players like Facebook, Apple,
Microsoft, and Snapchat all taking the mixed-reality space seriously. We note augmented
reality (AR) hardware and software vendor, Magic Leap, spent the last few years re-focusing
its business on enterprise use cases after VR struggled to take off on the consumer side
(gaming) and in early October raised a $500M funding round at a $2B valuation. We note mixed
reality’s use case extends beyond knowledge worker meetings to first line workers, who are
already using augmented reality glasses and headsets in industrial settings for worker safety,
training, remote assistance, and 3D remote inspections. In addition, mixed reality is serving
real-world use cases in 3D visualization for designers, engineers, doctors, and digital twins’ use
cases.

Significant investment in customer experience, but how about employee experience?

Businesses were pressured to significantly invest in Customer Experience technologies during
the pandemic as physical/in-person storefronts, client meetings, marketing events, and call
centers were all shifted to digital. In turn, modern front office software vendors saw an uplift.
However, back-office vendors largely underperformed their front-office peers. Although
businesses were quick to adopt collaboration and communication tools, such as video
conferencing, persistent messaging, and project management software, we believe this came
at the expense of potentially modernizing their human capital management (HCM) and
enterprise resource planning (ERP) software.
To some extent, we believe the de-prioritization of the broader employee experience has
contributed to what has been deemed the "great resignation." In August, a record 4.3M U.S.
employees resigned from their jobs, which is the highest level since the Bureau of Labor
Statistics began tracking the metric in 2000. In response, we are seeing some companies begin
to increase salaries and most at least partially adopt more flexible work models in order to
In our view, analytics is still attract and retain talent. We see this as especially true in the technology sector given "cool"
very underdeveloped in HR physical office spaces don’t carry as much weight for a more remote and distributed
use cases. We believe data- workforce.
driven and AI strategies can
still play a much larger role Therefore, we believe current labor dynamics could serve as a potential catalyst for a wave
in HR, such as in talent of public and private investment in HCM-related software in order to manage, analyze, and
acquisition, employee improve the employee experience across the full employee life cycle (from onboarding to
coaching and mentoring, talent management to departure). We believe there are many legacy, disjointed tools that go
self-service chatbots, and undiscovered by employees despite businesses' investments in them. We see solutions like
employee experience Microsoft Viva's Employee Experience starting to fill that gap as an interface to bring all those
analytics. disjointed products into one pane. In addition, there are some businesses gradually making
increased investments in nascent technologies like learning experience platforms, "Voice of
the Employee" solutions (Qualtrics Employee Experience, Workday's Peakon), and Digital
Adoption Platforms (WalkMe, Whatfix). In all these areas, we believe corporate buy-in is still
in its very early stages.
Longer term, we observe a number of HR use cases where there is room for innovation. We
believe data-driven and AI strategies can still play a much larger role in HR, such as in talent
acquisition, employee coaching and mentoring, self-service chatbots, and employee
experience analytics. In our view, analytics is still very underdeveloped in HR use cases. We
believe employee engagement tools could be an interesting area too (e.g., solutions to
facilitate more frequent and personalized communications between HR or managers and their
employees to check in on wellness, track professional development goals, and discuss benefits,
etc.).

Education: The early innings of a total transformation

From K–12, to higher education, to professional education, the way we learn has been evolving
in new and exciting ways for years with the COVID-19 pandemic accelerating this path
significantly. That said, despite all the changes to the system of learning in 2020/2021, we
believe that the transformation of education is still in the very early innings. We have closely
followed the edtech landscape for years and it was not until 2021 that edtech truly seemed to
While in the very early be catching up to the hype. In our view, the future of edtech is finally here and we expect
innings, we believe the innovation to continue rapidly over the next 5–10 years.
future of edtech is finally
here and we expect Why now? What has changed? We see two catalysts that have driven this advent of edtech
innovation to continue transformation. First (and more obvious) is COVID-19, the "grand experiment" for schools that
rapidly over the next 5–10 effectively forced educators globally to adopt technology overnight. Teacher adoption of
years. technology is critical and the genie will not be going back in the bottle now that teachers have
seen the power of solutions for facilitating in-person education. Similarly, based on our
industry checks we believe that administrators/decision makers are now more supportive of
using technology to facilitate learning, and are doing so at an increasing rate (as opposed to
more back-end use cases). Second, we believe that the technological infrastructure of learning
institutions even 3 or 4 years ago was not up to the challenge of making adoption of integrated
edtech solutions viable. The steady upgrade of IT systems, the availability of devices for K–12
students, and the adoption of the cloud are all recent changes that we believe finally can give
edtech a place to shine at K–12 and universities alike.
How could edtech shape the future of K–12? While we do see a number of exciting tools (e.g.,
modern display technology like interactive whiteboards) and software (Zoom, Kahoot!) gaining
adoption in K–12, we believe these tools are only scratching the surface for how technology
can shape learning. For us, the rise of personalized learning tools is the most exciting change
in the K–12 landscape and is something that we believe can improve learning outcomes and
equity. Over the next 10 years, we expect public and private K–12 schools alike to adopt
solutions like analytics that can identify core areas of focus, software with personalized
learning tracks, or even the availability of micro-tutoring delivered virtually.
Higher education; an antiquated business model? For years, universities have taken an almost
"vertical integration" approach to the campus sprawl, trying to do everything for everyone
largely out of a need for physical proximity. The thinking is that providing breadth and depth
of products and services in a centralized location would maximize a college's value proposition.
We believe that the advent
The growth of modern campuses (both upwards and outwards) is supported in part by student
of cheaper and (often
loans (the average U.S. borrower in 2020 had $37,000+ of student debt). While questioning
better) education
the value proposition and business model of higher education is not new, COVID-19 has
alternatives along with
brought higher education's many shortcomings to the surface. Students are realizing now
waning demand for
more than ever that there are more efficient or cost-effective methods of obtaining an
traditional (and expensive)
education (or even direct employment), and we expect parents and students alike are more
education will cause many
likely to balk at the high sticker price of an in-person education (particularly when part of
universities to reevaluate
tuition is being used to fund services or facilities that the student will never utilize). We take
their business models.
the view that the advent of cheaper and (often better) education alternatives along with
waning demand for traditional (and expensive) education will cause many universities to
reevaluate their business models. We believe that tighter integration with online learning
platforms like Coursera will be a critical component of this long-term tailwind.
We believe online degrees will increasingly be part of higher education's playbook. Fall 2020
immediate college enrollments declined ~7% Y/Y (National Student Clearinghouse). Balancing
this with the economic fallout from extra expenses in 2020 needed to make campuses COVID-
19 ready and many colleges were left in a difficult situation; spending money they didn’t have

in 2020 and then losing tuition. Considering that tuition itself is unprofitable for many colleges
before state funding (dorms are often one of the best profit centers for colleges), this decline
in enrollment is a significant impact to colleges' financial state that will be felt for years.
Because of this, we believe that additional sources of revenue are critical for universities to
In our view, a hybrid work maintain their financial well-being in the near term and expect to see more universities offer
future is the most likely online education options to students by partnering with Online Program Management (OPM)
outcome for enterprises, platforms like Coursera. Importantly, after the initial upfront investment required to kick-start
and we expect corporate one of these programs, OPMs typically take over the marketing costs, providing universities
and consumer learning with a low-cost method to retain and expand their student base.
platforms to play a larger
and larger role. Edtech and the hybrid work future. In our view, a hybrid work future is the most likely
outcome for enterprises, something that brings new challenges for educating a company's
workforce. We expect corporate and consumer learning platforms to play a larger and larger
role in this hybrid work future not just in terms of size and spend, but in determining use cases
and ways businesses can leverage education platforms to drive better business outcomes:
Talent acquisition and re-skilling. We believe that the growing “skills gap” (the skills
We also believe that the employers want vs. the skills employees have) in enterprises has been widened by the
growing “skills gap” in pandemic and that online learning can be used to help bridge this gap. On hiring, we have
enterprises has been noticed a growing trend of education platforms branding themselves as talent acquisition tools
widened by the pandemic that can connect employers with learners that have gained the skills needed via learning
and that online learning can platforms. Similarly, this use case increases the attractiveness of the learning platform for
be used to help bridge this learners (creating a nice "flywheel" effect) as these platforms can increasingly pivot
gap. themselves as a job placement tool with insight into the most hirable and in-demand skills. For
existing employees at an organization, learning platforms can be an effective, long-term tool
for employers to create learning paths to up-skill their workforce and further bridge the skills
gap (a use case that has substantial ROI implications).
Employee retention. With the market for talent (particularly technological) being so
competitive, employers are increasingly focused on retention of employees with in-demand
talents. Corporate learning platforms, particularly those that provide a track or path to up-
skilling or promotion for an employee, can be a nice incentive for employees to remain with
an organization.
Tech vendors and education. One of the fastest-growing trends we have seen in online
learning content has been the rise of tech vendors providing classes for free or reduced cost.
This benefits technology vendors by familiarizing future workers (and potential buyers) on
their solutions or by providing a pool of potential workers for the vendor. We expect this to
become a larger and larger part of technology companies' playbooks over the years and see
potential for tech companies to expand these programs further by partnering more deeply
with universities.

Gaming: Let’s have some fun

The long arc of human achievement
Author Byron Reese in his book “The Fourth Age” believes humanity is set to embark on a
fourth age of robots and AI, superseding a third age that brought writing and wheels, a second
age that brought agriculture and cities, and a first age that brought language and fire.
Separately, The Atlantic published the “50 Greatest Breakthroughs since the Wheel” using
functional categories (provided by Stanford business historian Leslie Berlin) to group these
breakthroughs into innovations that:
 Extend intellect: The printing press, semiconductors, paper, Internet, personal computer,
photography, abacus;
 Extend life: Penicillin, optical lenses, vaccination, nitrogen fixation, sanitation,
refrigeration, the pill, the green revolution, moldboard plow, Archimedes’ screw, cotton
gin, pasteurization, scientific plant breeding, the nail, the lever, the combine harvester;
 Kill: Gunpowder and nuclear fission;
 Extend communication: The Internet, telephone, telegraph, radio, TV;
 Extend mobility: The internal combustion engine, steam engine, airplane, compass,
automobile, sextant, sailboat, rocketry;
 Are organizational: Alphabetization, the Gregorian calendar, paper money;
 Are critical physical and operating infrastructure: Electricity, sanitation, cement, air-
conditioning; and
 Enabled the Industrial Revolution: The steam engine, steelmaking, oil refining, oil drilling,
assembly line.
Our innate quest to transcend time and space

Regardless of how one categorizes human achievement, we believe one unifying theme from
media history is our innate quest to transcend time and space (and our interaction therein).
While humanity is clearly far from being done on the physical front by transcending “physical
space and time” (space exploration being a concrete case in point), like Bryon Reese, we do
expect a notable acceleration in the human transcendence of “digital time and space. In our
June 2018 RBC Telecom Scenario Report entitled “Intelligent Reality and the Inflection Period
for Content,” we created a roadmap by which investors could better understand and track this
acceleration, highlighting how, with personalized platforms that integrate VR/AR/MR and AI,
We believe that VR/AR/MR
the digital boundaries for mediated reality (time and space) and mediated intelligence
and AI will usher in a new
(interactivity) are virtually infinite, and only restrained by the capabilities of the technology
era of mediated reality and
stack.
mediated intelligence that
begins to rival that of, and Even better than the real thing
in some instances substitute With the relentless advancement in the technology stack, in our view, it is almost
for, the real world. mathematically certain that VR/AR/MR and AI usher in a new era of mediated reality and
mediated intelligence that begins to rival that of, and in some instances substitute for, the real
world. While there are numerous examples of such substitution already taking place – work-
from-home, video conferencing, virtual learning, remote healthcare, online gaming – we
believe these examples only scratch the surface of what the full transcendence of digital time
and space could represent. Furthermore, hybrid living and the “fusion” of physical and digital
time and space is likely to lean on a variety of interfaces from traditional screens and
headphones to VR goggles and AR glasses to virtual assistants, holograms and eventually
multiple machine-human interfaces. Ultimately, we think the most successful personalized
platforms in support of hybrid living will be those best able to fuse physical and digital worlds
in the most natural, seamless and holistic ways.

Sizing up extension versus substitution

The disruption that the first iteration of the Internet is having on several industries (media,
retail, real estate, banking etc.) and institutions is well documented. While significant, we
believe the economic, social, cultural, political and environmental impacts that the second
iteration of the Internet (often referred to as the “Metaverse”) will bring will be nothing short
of profound. In grasping the investment implications of an acceleration in the human
transcendence of digital time and space within this Metaverse, a critical component will be
understanding where digital time and space will be an extension of physical time and space,
and where it will be a substitute. Against this backdrop, we caution that the more obvious
“extension scenarios” whereby the productivity of industries and institutions are greatly
We believe the economic, enhanced by VR/AR/MR and AI technology, will need to be carefully sized up against the less
social, cultural, political and obvious but much more profound “substitution scenarios” whereby existing industries and
environmental impacts that
institutions are outright displaced.
the second iteration of the
Internet (often referred to In the meantime: It’s all fun and games!
as the “Metaverse”) will For an early glimpse of what the transcending of digital time and space and hybrid living could
bring will be nothing short look like, we turn to the global gaming ecosystem. Enabled by the advancement of the
of profound. technology stack, video games are now fully morphing into broader, holistic immersive
platforms that converge entertainment, information and communication while embedding
powerful social, sport and commercial elements. The amplification of these elements has
resulted not only in a much larger gaming ecosystem, but one where we believe the level of
engagement is simply unparalleled across mediated content, rivaling that of in-person
interaction and even physical sport. Furthermore, there is no doubt in our mind that gaming
is already an identity and a lifestyle and at the center of pop culture for Gen Z (ages 6–24) and
most millennials (ages 25–40), displacing TV, movies and music that had arguably held this
position for the better part of the 20th century.
In our view, characteristics of gaming that position the global gaming ecosystem near or at
the forefront of hybrid living include:
 Gaming is addictive as a highly immersive form of entertainment;

 Gaming platforms sit at the frontier of the current technology stack with computer-
simulated platforms serving as natural environments for VR/AR/MR and AI;
 Gaming content has a natural head start with respect to the mediation of reality and the
mediation of intelligence;
 Gaming is at the center of pop culture at a time when the rate of change in mediated
content is set to accelerate through our mid-2020s inflection period;
 Gaming personas naturally have “presence” and are inherently “relevant” providing high
degrees of anonymity, freedom of expression and exploration, acceptance, authentication
and/or sense of community; and
 Gaming platforms by design look to be a natural precursor to the “Metaverse.”

Internet: Metaverse – The story of the ultimate walled garden

Metaverse is the next stage in the evolution of the Internet
In our view, the metaverse is the most logical next step in the evolution of leveraging the
confluence of bandwidth, software and mobility to where those foundational components are
now evolved enough to begin integrating aspects of the physical world more immersively into
the digital world. With that said, much like those that have been big beneficiaries in the current
Internet, we see many of the same determinants of success as companies pursue their relative
metaverse strategies, which is likely favorable for a few players in the Internet space.
One of the key debates we see forming is the notion that the metaverse could be colonized by
In line with prior one or just a few ecosystem providers vs a blockchain/open-source/disaggregated platform
generations of Internet structure. Obviously, the potential for infrastructure, hardware, software and applications
value creation, we think the partnerships is enormous. In line with prior generations of Internet value creation, however,
likely beneficiaries in the we think benefits may accrue to companies pursuing some iteration of the walled garden
emerging Metaverse are approach as connectivity's inherent network effects should likely allow for rapid formation of
companies pursuing some competitive moat, which is virtually impossible to overcome once it has begun.
iteration of the walled
garden approach, as Obviously, we're biased, but we believe the walled garden approach likely carries some
opposed to those with a significant structural advantages:
blockchain/open-source/
disaggregated platform Full ecosystem control leads to tighter integration between hardware, software and the
structure. respective ecosystem enabling likely broader innovation and a better, more cohesive user
experience.
The existing possession of the largest audiences should provide meaningful tailwinds to
metaverse adoption given that any open-source consortium may encounter initial
foundational platform discord that will slow the pace of innovation and adoption.
The ability to tie data from existing platforms like search and social should favor those
seeking vs those that must compel a new user base.
Expanding ability to manage risk exposure to user privacy and a myriad of potential
criminal applications.
In terms of low-hanging fruit verticals for early pursuit within a metaverse environment, we
believe they must possess two core characteristics:
The digital experience must at least somewhat reasonably approach the equivalent
physical experience while not reducing the efficiency of the current online equivalent
(buying books online vs digitally finding them in the metaverse); and
There must be some commercial aspect to the activity. Obviously anything around
education, gaming and many leisure activities such as any sort of live entertainment likely
makes the most sense, but we also think of interesting commercial applications like
manufacturing, robotics, real estate, dating, travel, home services, car retailing and many
other use cases across other enterprise and professional services applications.

Exhibit 68 - We think metaverse applications make sense across the spectrum of consumer
(and this doesn’t even include enterprise)
Source: Company reports, U.S. Census Bureau, UStravel.org, RBC Capital Markets estimates

Internet: Policing the online world

Digital content has exploded. The amount of data generated every day has exploded. The
World Economic Forum estimates that the volume of data in the world will increase 530% from
33 zettabytes (one billion terabytes) in 2018 to 175 zettabytes by 2025. This is up from 1
zettabyte in 2016. With significant reductions in prices and advances in the quality of sensors,
nearly every device generates data that is now stored locally or is uploaded to the cloud. Social
media encourages consumers to create and share more digital content. Global smartphone
penetration has reached 81%, according to Statista, which means that the vast majority of the
population is able to create and share content whenever and wherever.
Exhibit 69 - World Economic Forum expects global data measured in zettabytes to rise
another 530% by 2025
175
33
2018 2025
Source: RBC Capital Markets, World Economic Forum
According to the European Commission, 85% of criminal investigations involve some form of
digital evidence. While the vast majority of digital content is innocuous (like cat videos), a
small portion involves criminal activities, provides evidence of criminal activities and involves
communications and other metadata to establish relationships between criminals.
The good guys are only going to need more help. Digital forensics software are tools used for
the identification, extraction and preservation of digital evidence, which can be used by a court
of law. These tools help law enforcement agencies sift through enormous amounts of data to
find illicit or suspicious content in an efficient manner. Moreover, these tools analyze digital
“artifacts” or traces of data left behind on digital devices. Artifacts help trace the activities and
The digital forensics market communications of criminals, even when they may try to conceal their activities. Artifacts
is set to expand at a 12% typically provide clues that help investigators identify additional locations of digital evidence,
CAGR from $1.7B in 2018 to such as websites or apps that criminals may have used or the timing of certain illicit activities.
$4.2B in 2025.
Digital forensics is a niche, yet growing market. Grand View Research forecasts the digital
Helping fuel this growth is a forensics market is set to expand at a 12% CAGR from $1.7B in 2018 to $4.2B in 2025. Drivers
lack of technical expertise of growth include increasingly sophisticated criminals using electronic communications, the
among investigators digitization of data, and the exponential growth in data volume and complexity across
(among other factors). numerous applications, devices, and cloud services. Additionally, there is a lack of technical
expertise among investigators, which requires advanced software to help efficiently and
effectively investigate criminal activities.

Exhibit 70 - Grand View Research estimates digital forensics is a $1.7B market, which it
forecasts to grow at a 12.3% CAGR
$4.2B
While we believe digital

forensics tools are
predominately used in the
public sector, enterprises $1.7B
are increasingly adopting
digital forensics as part of
their cybersecurity
practices.
2018 2026
Source: Grand View Research; RBC Capital Markets
Digital forensics is crossing over into the corporate market. While we believe digital forensics
tools are predominately used in the public sector, enterprises are increasingly adopting digital
forensics as part of their cybersecurity practices. The COVID-19 pandemic has raised the need
for digital forensics solutions in the corporate market given the elevated level of cybersecurity
crimes. According to McAfee, COVID-related cyberattack detections increased 240% Y/Y
Q3/CY20 and 114% Y/Y Q4/CY20. In particular, these tools help IT professionals analyze insider
threats (e.g., corporate espionage, sharing of trade secrets) and identify exposures from
malware and other cybersecurity attacks. Additionally, digital forensics tools are crossing over
into adjacent markets like case intelligence & analytics and electronic discovery (e-discovery).
Case intelligence & analytics software is used to manage workflows in forensics labs and
organize large amounts of digital evidence. E-discovery software involves identifying,
collecting, and analyzing electronically stored information in response to a legal dispute or
internal investigation.
Monitoring the regulatory front

While the mass of data collected on individuals continues to grow, calls for regulation around
personal privacy and data protection will become increasingly important. Privacy regulations
regarding consumer data are limited, which allows advertisers and social media companies to
sell and use data in order to market their products more effectively. While ads and social media
feeds are more targeted to a particular person, and thus, more meaningful, many consumers
Regulations could broaden are worried about the lack of transparency as to what their data is being used for. As a result,
to hold Internet companies debate around regulation and possible legislation of consumer data uses will continue to be
more accountable for data prevalent moving forward.
generated on their platform
or misuse of consumer data. Regulations could broaden to hold Internet companies more accountable for data generated
on their platform or misuse of consumer data. Section 230 of the Communications Decency
Act currently gives companies protection from liability for user-generated content on their
platforms. While this protection has benefitted companies since their inception, consumers
are becoming more aware or how their data is being used to shape the online environment
around them. In order to prevent misuse of their ever-increasing data footprint, consumers
may push for Section 230 to expand its scope. The widened focus could include a provision for
social media companies or other Internet companies to meet certain standards regarding
transparency and data security to qualify for protection under Section 230.

Additionally, the use of AI ultimately benefits consumers in the form of better ads or a more
tailored newsfeed; however, insights gained from the use of AI may provide deeper knowledge
into behavior and profiles that consumers may not want to share with a company. Strict
privacy standards on what data AI can analyze as well as how it can sell or otherwise use data
will need to be regulated in order to keep data private and in the hands of consumers.

Manufacturing: Factories of the future

Using digital tools will increasingly make breakthroughs in the physical world. From a
manufacturing standpoint this means more AI/machine learning, 3D printing, robotics, rapid
prototyping, etc. The scaling potential of changes to manufacturing with the advent of Industry
4.0, the industrial Internet of Things, is a vast opportunity. This can move well beyond “smart”
manufacturing to complete end-to-end connectivity across the supply chain allowing for
significantly richer information and flexibility. There will be an increasing focus on the
“machine that makes the machine.” So the factory moves from robots that are printers or
assemblers or cutters to self-assembly machines that can merge materials and assembly
functions. If we think about the amount of IoT devices in factories and throughout the supply
chain, it is possible that manufacturing can be on the same cusp of scaling that the Internet
saw when it scaled as devices moved from mainframes to computers to smartphones. The
recent supply bottlenecks, logistical issues and factory downtime issues post COVID-19 have
highlighted the need to strengthen supply chains. Robotics, AI, software and other predictive
technologies can help supply chains run more efficiently.
While this will require significant investment and capex, it is not hard to imagine that the
payback can be fairly quick given productivity, reduced operation costs in logistics, labor and
materials as well as working capital efficiencies.

Energy: Oilfield Services…from home?

Remote operations and enhanced collaboration tools are being increasingly used to complete
projects within the oil & gas industry, with adoption partly driven out of pandemic-necessity.
Remote monitoring provides enhanced efficiencies, improved safety, and in some instances,
may help lower emissions through fewer unnecessary trips to remote well or rig sites. Effective
remote operations require enhanced asset monitoring capabilities, communication, and
analytics.
The virtual oilfield. Schlumberger is conceptualizing a virtual twin environment where users
from multiple organizations can access a virtual project. The software creates a digital
rendering of a completions site, rig, or gas processing plant. Users can look at the animated
activities and operations sequence and choose to collaborate or make changes in real time.
The whole workflow is accompanied with a combination of gaming and real-world features to
improve the user experience: 3D avatars, white boards, notes capture, and chat and voice
communication. Each of these can be experienced in VR, on a mobile or PC mode. Eventually
the virtual environment may be used to conduct simulation analysis.
Exhibit 71 - 3D immersive environment for drilling
Source: Schlumberger

Medical devices: The world of smart implants

Smart implants are the future of the medical device industry. Smart implants are implantable
devices that not only provide therapeutic benefit to treat the underlying disease, but also
provide diagnostic capabilities. The underlying sensor technology is not new and has been
utilized in the medical device industry for decades, such as in cardiology and in wearables. That
said, the integration of sensor technology into implants to make them ‘smart’ and capable of
diagnosis for potentially decades post-surgery is a significant leap forward, in our view, that
leaves no room for patient non-compliance.
There are significant benefits associated with smart implants. The integration of smart
The integration of smart implants into daily clinical practice could have significant benefits for the patient, physician,
implants into daily clinical and payor. For the patient, it is likely to drive early detection of deteriorating conditions, such
practice could have as post-surgery, which could in turn allow for early intervention and treatment of the
significant benefits for the condition. For the physician, it is likely to drive efficiency in patient treatment as they can
patient, physician, and spend time treating more severe or higher acuity cases as well as drive additional revenue
payor. streams with remote patient monitoring. For the payors, it is likely to drive significant cost
savings due to early detection and treatment of the disease, which in turn could drive down
revision rates over time.
Smart implants are likely to permeate into several medical device sub-markets over time.
‘Smart’ implants have applicability in a range of medical devices. The near-term applications
are likely to be in orthopedics such as reconstruction (e.g., knee and hip arthroplasty), spine
(e.g., fusion procedures), shoulders (e.g., replacement procedures), and trauma (e.g., fracture
fixation among others). The intermediate applications are likely to be in areas such as vascular
(e.g., aortic aneurysm and stents), as well as aesthetics (e.g., breast implants). In the long term,
we expect ‘smart’ implants to permeate throughout the field of medical devices and become
the standard of care.
Smart implants will expand the scope of their diagnostic capabilities over time aided by
artificial intelligence. Smart implants are likely to be limited in the scope of their diagnostic
We expect the data capabilities initially as we expect the data capture to measure physiological parameters such
collected by smart implants as activity and motion in orthopedics (i.e., gait, range of motion, average walking speed, and
to eventually be tied to distance traveled) and pressure and flow in vascular. Subsequently, we expect this data to be
patient outcomes with the tied to patient outcomes with the ultimate goal of combining sensor capabilities with artificial
ultimate goal of combining intelligence to assess implant fidelity in real time and provide the physician with improved
sensor capabilities with decision-making ability.
artificial intelligence to
assess implant fidelity in Smart implants could lower revision rates in orthopedics and allow monitoring of brain
real time and provide the aneurysms in neuro applications. In orthopedics, sensors measure frequencies in knees or
physician with improved how firmly an implant is integrated into the surrounding bone. As the implant begins to fit
decision-making ability. more firmly into the surrounding bone post-surgery, the frequency captured should reduce
suggesting a successful surgery. If the implant begins to loosen after several years, the
frequency captured will begin to increase and be captured by the physician’s monitoring hub
for follow-up. This capability can address a major issue of micro-motion or the feeling of
instability in knees, which is a major contributor towards a 20% dissatisfaction in knee
procedures. The technology could help identify other complications as well such as
contracture or restriction in motion, aseptic loosening caused by foreign body reaction to wear
debris, and infection. If such conditions can be detected early, it may require a simple change,
manipulation, or revision of a component of the implant versus a revision surgery that is costly
and has greater implications for the patient. In neurovascular, sensors could be integrated with
flow diverters, as an example, for the treatment of brain aneurysms or bulges in blood vessels

or to monitor hemodynamics in a blood vessel (without costly diagnostic procedures required

frequently to assess how the vessels are healing post procedure).
Exhibit 72 - Smart implants in Orthopedics and Neurovascular
Source: Canary Medical, Inc.
Smart implants are likely to become a significant part of the continuum of care. A major trend
in the medical device industry is to provide continuum of care to patients in their care journey.
This includes pre-operative care (e.g., with wearable sensors), intra-operative care (e.g., with
We believe the device robotics), and post-operative care (e.g., with smart implants). We believe the device industry
industry is in the in the early is in the in the early innings of driving continuum of care that integrates AI in a way that could
innings of driving drive meaningful decision-making. We believe smart implants are likely to play a critical part
continuum of care that in closing the gap, especially given that the necessary building blocks are now in place for the
integrates AI in a way that industry to drive towards it. This includes reimbursement for remote patient monitoring (see
could drive meaningful Exhibit 73) as well as miniaturization of the device that allows for less modification to the
decision-making. implant itself.
Ultimately, we believe Exhibit 73 - Established CPT codes for remote patient monitoring
smart implants or talking
medical devices could be What’s covered CPT Code Amount
game changing for the
Patient onboarding 99453 $18.77
industry over time.
Data collection 99454 $62.44
Data use
First 20 minutes 99457 $51.54
Next 20 minutes 99458 $42.22
Source: Canary Medical, Inc.
Smart implants could drive further innovation in the medical device sector. The data
obtained from years of smart implant usage is likely to drive further innovation in the medical
device sector, we believe. It could lead to refinements in implant designs, surgical techniques,
and strategies for post-operative care as well as rehabilitation. Net-net, we believe smart
implants or talking medical devices could be game changing for the industry over time.

Healthcare Technology: Virtual health is the future

The pandemic has accelerated the proportion of life experienced through a virtual interface.
This extends beyond just entertainment as more individuals are conducting business without
ever meeting in person. While less intuitive, healthcare services are no exception and are
arguably one of the more applicable use-cases for a sustainable, hybrid solution.
We are quickly approaching a point where virtual channels will be the first place people turn
for their healthcare needs. These new models are being built around the idea of “stepped
care,” where artificial intelligence (AI) is used to guide individuals to the most appropriate
We are quickly approaching resource or site. AI is also being used to automate the addressing of many lower-acuity issues.
a point where virtual In higher-acuity situations, virtual care involves remote consultations with physicians and
channels will be the first therapists. And in those cases where an in-person visit is needed, it can facilitate remote
place people turn for their interactions with specialists and equip doctors with better tools to more continuously (and
healthcare needs. remotely) monitor patients via a myriad of connected devices.
To be clear, the intention is not necessarily to replace in-person care, rather the aim is to make
it more efficient, effective and consumer friendly. Virtualizing care does this by: (1) eliminating
geographic barriers; (2) extending a provider or health system’s capabilities; (3) facilitating
better collaboration among care teams; and (4) enabling the delivery of more proactive and
continuous care.
How does virtual health add value?

A big part of what makes Virtual Health so exciting is the potential it holds. Investments into
the space are accelerating – per Rock Health, digital health venture funding broadly totaled
$14.6B in 2020, up 90% YoY, and 76% higher than the previous record set in 2018. Funding in
2021 has already eclipsed the entirety of 2020 (by $0.1B) in the first half of the year alone.
Much of this is being used to fund innovation, which is helping accelerate new technologies
and applications that are being deployed to address a rapidly expanding range of use cases.
To help better conceptualize the longer-term applications and opportunities here, we discuss
some of the many ways in which we see virtual care adding value…
 Lowering the cost of delivering care – beyond the savings from shifting an in-person visit
to a virtual setting, providing individuals with virtual options can help avoid costly urgent
care and emergency department visits in the U.S. Also, recent advances in artificial
intelligence (AI) are now enabling many lower acuity issues to be resolved in an automated
manner, avoiding the need for a provider at all. This helps increase provider efficiency and
ease shortages by enabling them to continually practice at the “top of their licenses.”
Per the American Hospital Association (AHA), one of its members that established a virtual
hospital immediately following the initial COVID-19 outbreak treated 18,000 patients as
of August 2020, with only 3% requiring a subsequent transfer to a brick-and-mortar site.
The key take here being those virtual capabilities helped avoid a significant number of
costly hospitalizations.
 More efficient triaging – for those individuals that need to be seen “in-person,” an upfront
virtual triage – either via a physician or an AI chatbot – can help better direct them to the
most appropriate site. The benefits of better navigation include not only getting
individuals to the optimal site for their condition, but also determining based on their
insurance coverage/provider network, which providers deliver the best value (outcomes
vs cost).
 Enabling more proactive care – recent advancements in technology have given rise to a
myriad of new devices that enable more granular/frequent/real-time data gathering from
patients (during the times in between physician office visits), that when coupled with
advances in data processing and intelligence, are helping facilitate more proactive
interventions to catch health issues earlier on and help avoid or minimize acute events.
Better coordination tools and virtual consultations also enable more effective and
efficient collaboration among care team members.
 Providing convenience – not only are the virtual options more convenient for individuals,
but they help improve employee productivity/reduce absenteeism, and enhance the
patient/consumer experience.
Virtual health lowers the  Improve adherence – tangential to this, it has been well established in medical literature
cost of delivering care, that a lack of adherence to treatment plans – including missing or foregoing physician
results in more efficient office visits – is one of the biggest drivers of poor health outcomes. Making it more
triaging, enables more convenient to get healthcare helps reduce missed appointments and improve adherence,
proactive care, improves which can go a long way in improving an individuals’ overall health.
adherence, all while  Enabling better access to better care – virtual options help remove the geographic
providing convenience and barriers to getting care. Along the lines of convenience, telehealth makes it easier for
better access to better care. individuals with mobility issues (either because of a disability or handicap or lack of access
to reliable transportation or they live in a rural location) to access care. It also helps
individuals access better care – no longer are they limited to the providers in their locality;
via these virtual tools, they can just as easily reach some of the most specialized doctors
in the country (or world).
Improving the access to care

Virtualizing care delivery
Historically, individuals usually had to leave their home in order to receive any type of healthcare.
With recent advances in technology, this is no longer always the case. There are a myriad of
companies that offer either virtual health services directly to individuals, or are helping existing
providers and payors establish virtual alternatives for their own patients/members.
Exhibit 74 - TytoCare has developed a series of devices that help physicians perform more
comprehensive virtual medical examinations
Source: Company Website
Facilitating easier access to specialists / higher-quality providers

When care can be delivered remotely/virtually, it can facilitate access for individuals to options
or resources they may not otherwise have locally. Similarly, it can also help supplement or
enhance the quality of care they are receiving. Offerings here range from platforms that
provide care sites with remote access to networks of specialists who help enhance the quality
of the care being delivered locally, to second opinion services that provide individuals access
to some of the highest-quality, most specialized doctors in the world who can take a second
look at the diagnoses and treatment plans that their local doctors have laid out for them.
Exhibit 75 - Amwell provides a combination of software and devices that enable providers to
connect with both each other and/or patients remotely
Source: Company website
Improving the quality of care

Beyond helping to improve the access individuals have to care, there are almost an infinite
number of ways virtual capabilities can (and are) being used to improve the quality of care
There are almost an infinite individuals are receiving. Again, the range of approaches/strategies here is very wide, but
number of ways virtual some of the more exciting include: (1) remote patient monitoring – using new devices and
capabilities can (and are) artificial intelligence to gather and better understand more real-time/higher-quality data from
being used to improve the individuals to enable more proactive interventions to help avoid higher-acuity health events;
quality of care individuals (2) the development of next-generation disease management programs that help individuals
are receiving. better manage their conditions; and (3) improving mental healthcare – there is growing
appreciation for (and work being done to address) the significant impact behavioral health
issues can have on an individual’s overall health.
Remote patient monitoring

Historically, doctors only knew what was going on with their patients when those individuals
came into their offices for appointments. This meant there could potentially be significant gaps
in the time between those visits during which (and unbeknownst to the doctor) a patients’
health could deteriorate and they would wind up in the hospital as a result. Landing in an

emergency department is not only very expensive (in terms of money), but is awful for the
patient because it typically means they have suffered some type of acute medical event.
Fueled by recent advancements in technology, there has been a proliferation of new devices
that enable more granular/frequent/real-time data gathering from patients (during the times
in between physician office visits), that when coupled with advances in data processing and
intelligence, are helping facilitate more proactive interventions to catch health issues earlier
on and help avoid or minimize acute events. Offerings in this space range from the
devices/sensors/wearables used to capture the data, to the tools that enable the aggregation
of all relevant data, to the software that helps analyze all of it and determine what is actionable
(and which actions should be taken).
Addressing mental / behavioral health (BH)

There is increasing appreciation for the impact a behavioral health condition can have on an
individual’s overall health. In many cases, the existence of a BH condition can impair a person’s
ability to effectively manage any chronic medical conditions they may be afflicted with –
several recent studies have shown these situations can act as a multiplier on that individuals’
medical spending as a result. This has resulted in both health plans (i.e., payors) and providers
becoming much more interested in better managing a patient’s mental health as a way of
As technology continues to better controlling their medical costs. Given the difficulties in doing this effectively and at scale
improve the quality and – ranging from a lack of experience/expertise with these types of conditions, a lack of access
affordability of telehealth to a network of behavioral health therapists, and even an inability to accurately identify
capabilities, so too does the individuals with BH conditions (i.e., most BH issues are undiagnosed) – a growing number of
range of appropriate use payors/providers are looking to outsource it. Technology is making a difference by not only
cases. We expect the helping facilitate easier access for individuals (via video visits with therapists and/or AI-
number of applications to powered chatbots), but also using data to better understand who may be struggling with an
grow significantly as undiagnosed condition and modeling out which treatment options would be most effective
innovation continues. and efficient.
Other novel applications

As technology continues to improve the quality and affordability of telehealth capabilities, so
too does the range of appropriate use cases. There are a number of companies including
Amwell and SOC Telemed that provide the capabilities to support broader access to specialist
care in areas with more complexity such as tele-oncology, -radiology, -pathology, and
-cardiology. Further, telehealth is enabling efficient at-home care (post-operative) in skilled
nursing facilities, dentist offices, and even in the workplace to treat musculoskeletal injuries.
We expect the number of applications to grow significantly as innovation continues.

Exhibit 76 - Many services can be virtualized during and after pregnancy
PRENATAL POSTPARTUM
Online communication with providers
Mental health care
Virtual prenatal care visits

Virtual postpartum visits
At home monitoring: weight, blood pressure,
fetal heart rate, blood sugar, etc.
Specialist consultations: maternal-fetal Lactation support

medicine, genetic counselors

Telehealth is much more than just video conferencing

We still get a lot of questions around the extent to which telehealth is really all that different
than just video conferencing. The competitive moats that exist here are not immediately
obvious – but they do exist.
While video conferencing was the quick answer for many providers who scrambled to put
Real telehealth involves solutions together in the immediate aftermath of the initial COVID-19 outbreak, it is not a
much more than just a viable long-term solution. Real telehealth involves much more than just a video connection –
video connection – much of much of it centers on the integration of multiple disparate sources of data. The most effective
it centers on the integration telehealth solutions use data in multiple different ways, including:
of multiple disparate
sources of data.  Triaging the situation – using data and artificial intelligence (AI) upfront to help resolve
lower acuity issues and then direct individuals to the most appropriate resource/level of
care when needed. This helps increase provider efficiency and ease shortages by enabling
them to continually practice at the “top of their licenses.”
 Simplifying the administrative aspects of the interaction – integrating into scheduling
systems enables appointments to be booked seamlessly. The most effective telehealth
solutions will also connect into electronic health record (EHR), e-prescribing and patient
accounting/revenue cycle management (RCM) systems to simplify the billing and
collecting process and to capture the clinical details of the visit. Simplifying these
administrative tasks help minimize friction, making it easier to incorporate telehealth into
provider workflows.
 Delivering better care – integrating into EHRs, care coordination and decision support
systems equips providers with a more complete picture of the patient and access to
resources that can help them deliver higher quality and more proactive care. There are
also platforms now that enable doctors to control devices on the patient’s end, including
digital stethoscopes, remote cameras and other diagnostic devices which can broaden the
range of physiological data that can be collected and assessed.
 Driving engagement – the pandemic has helped generate more awareness of the virtual
options for getting care, but we are still in the very early days of what we believe is the
longer-term opportunity. Said differently, there is still a lot of education and behavior
change that needs to occur. More sophisticated telehealth/virtual health platforms have
tools that help better inform individuals of the options they have available to them. They
also have mechanisms that can remind those individuals of what the virtual alternatives
are at the moments they are most in need of them.
 Access to bigger/better/deeper pools of healthcare providers – in many of these new
models that were hastily established following the initial COVID-19 outbreak, video
conferencing with a doctor is just simply shifting an in-person visit to a virtual one. Many
of the more established virtual health providers have created large networks of specialists
and “experts” that not only enable a virtual consultation with a physician, but significantly
elevate the quality of care being delivered by facilitating interactions with some of the
most specialized / highest-quality doctors in the world.
What are the next big ideas?

Incorporating one or several of the capabilities described above is helping give rise to multiple
promising new care delivery models, including Virtual Primary Care, Whole Person Care,
Hospital at Home, and ‘Next Generation’ chronic condition management.
Virtual-first plan design

Virtual-first plan design is the structuring of health plan benefits in a manner meant to change
how individuals access healthcare – the aim being to incentivize individuals to seek care

through the less costly virtual channels first (i.e., telehealth), thus minimizing the use of the
traditional, but more expensive brick-and-mortar ‘in-person’ settings. Payors have multiple
levers they can pull to steer members to virtual channels and can gear them based on how
aggressively they want to incent change. Not surprisingly, most of them rely on financial
enticements.
Innovation is giving rise to
multiple promising new Examples include: (1) changing deductibles and copays – payors can lower members’ out-of-
care delivery models, pocket costs for virtual health visits while at the same time increasing costs associated with
including Virtual Primary seeing a provider in-person; (2) reducing the cost of specialists – payors could lower the out-
Care, Whole Person Care, of-pocket costs of seeing a specialist for those members referred to them via a virtual visit; (3)
Hospital at Home, and ‘Next lowering prescription costs – payors could offer lower out-of-pocket costs for prescriptions
Generation’ chronic prescribed to members via virtual visits; (4) providing incentives for a second opinion – payors
condition management. could deposit money into a health savings account (HSA) or provide some other financial
enticement for members to seek a second opinion before scheduling a surgery or undergoing
particularly costly treatments; and (5) providing an easy-to-use member interface – supplying
members with “one front door,” or a single, user-friendly interface can also help incentivize
the use of virtual options.
Virtual Primary Care

Whereas the “virtual first” concept discussed above uses plan design to incentivize individuals
to utilize virtual alternatives, Virtual Primary Care on the other hand involves more of a re-
design of how care is actually delivered. Participants in VPC programs have a longitudinal
relationship with an individual physician, who is available to them virtually and integrated into
a larger team of other providers (health coaches, dieticians, therapists, specialists, etc.) that
are able to ‘virtually’ shepherd individuals through most of their day-to-day healthcare needs.
These models, over time will also likely build in more devices and remote monitoring
capabilities, helping providers better track and manage patients outside the walls of their
practices, enabling the delivery of more proactive care.
Exhibit 77 - Example of “Whole Person Care” enabled by the merging of Teladoc/Livongo’s capabilities
Source: Company presentation

Whole Person Care

We know an individuals’ health is influenced by a myriad of different factors, with the medical
care they receive just being one of them – their emotional/psychological condition can play a
big role as can genetics, nutrition and other social determinants. ‘Whole Person Care’ focuses
not only on better integrating and coordinating the medical care they receive (primary,
specialty and acute care), but also addressing their behavioral and socioeconomic needs. Put
more simply, it brings together all of the parts of the system to treat the whole person.
Hospital at home (HaH)

A hospital is usually one of the most expensive places an individual can go for care, so programs
designed to either shorten length-of-stays or avoid them altogether have the potential to save
a lot of money. HaH models involve providing hospital-level care to individuals in their homes
as a full substitute for acute care. This is enabled by a combination of connected devices that
help monitor a patients’ health by collecting relevant physiological data (blood oxygen levels,
EKG, etc.) along with daily supervision by doctors and/or nurses both in-person and virtually.
In response to the pandemic-related shortage of hospital beds, CMS expanded its Acute
Hospital Care at Home program, through which Medicare beneficiaries can now receive in-
home care for 60+ conditions including asthma, chronic obstructive pulmonary disease,
congestive heart failure and pneumonia.
Next-generation chronic condition management

The concept of care management is not new, but up until now has been limited in its
effectiveness since, historically, doctors only knew what was going on with their patients when
those individuals came into their offices for appointments. This meant there could potentially
be significant gaps in the time between visits, during which (and unbeknownst to the doctor)
a patient’s health could deteriorate and they could wind up in the hospital as a result. Landing
in an emergency department can be very expensive, and is a negative outcome for the patient
because it typically means they have suffered an acute medical event.
Tailwinds are strengthening

Not only has the pandemic helped accelerate Virtual Health to its tipping point, but we see the
longer-term macro tailwinds continuing to strengthen: (1) consumers are increasingly being
empowered and placed in control of healthcare decisions; (2) technology is advancing and
more money is flowing into the space, helping to further accelerate innovation; (3) there is
Virtual tools are key to the more data proving the effectiveness and returns linked to these new solutions; and (4) the
delivery of more proactive, reimbursement and regulatory landscapes are becoming increasingly supportive.
effective and convenient
care, and if implemented The opportunity is immense
correctly, have the potential The delivery of more proactive, effective and convenient care is the goal here – we view these
to both significantly new virtual tools as a key enabler of this – and if done right, it has the potential to both
improve overall health and significantly improve overall health and lower costs. Not only are the dollars involved
lower costs. substantial – the U.S. spends ~$3T annually on chronic conditions alone – but adoption
remains low, innovation is accelerating and there are a wide (and rapidly expanding) range of
We are bullish on potential use cases.
technologies that allow
existing medical practices The broader software industry is in the game
with existing books of In our view, software that enables telemedicine will remain a sustained beneficiary. We are
business (especially those closely watching technologies that allow existing medical practices with existing books of
that are part of larger business (especially those that are part of larger healthcare systems) to become true
healthcare systems) to telemedicine providers.
become true telemedicine
providers.
Zoom, in our view, has the best video meeting platform of any software provider, especially in
terms of reliability, scalability, and ease of use. Given how ubiquitous Zoom became during
the pandemic in both the business and consumer spheres, we believe Zoom has significant
mindshare to drive further adoption within telemedicine. In addition, we would note Zoom
sells verticalized solutions targeted at healthcare that are fully HIPAA compliant. Beyond this,
Zoom also offers robust APIs to integrate those best-in-class video-conferencing capabilities
natively within the healthcare provider’s applications, meaning the patient and doctor never
have to switch applications, while the healthcare provider preserves branding and control.
Separately, we note Zoom’s video APIs are embedded in Veeva CRM Engage, which allows
pharmaceutical sales reps to communicate directly with doctors virtually.
Twilio is an API (application programming interface) company that sells communications tools,
including texting, voice, and video for companies to embed in their applications. Twilio’s video
APIs also saw major adoption during the pandemic, including telemedicine use cases. In fact,
we would point out that Epic’s telemedicine platform is powered by Twilio’s video APIs. Epic
is the largest EMR provider and has been able to successfully cross-sell its telemedicine
platform into its large install base.
In addition, software on the back end (including software that enables building better mobile
applications, payments, bookings, etc.) should see sustained benefits as the rise of greater
telemedicine and the push for greater control over healthcare.

Real Estate: Digital emergence could change…everything

Advancements in technology have already changed the way people work, shop and even
socialize, and thus, the way they use real estate, creating a new hybrid reality. This trend has
implications for the demand for real estate not just in terms of location but also its type, style
and the way it is operated.
Urbanisation has been a big theme for real estate over the last few decades, with the biggest
global cities appearing to have benefitted most. This trend appears to have largely been driven
by improved access to the best jobs and education, which in turn has led to better access to
healthcare, retail and entertainment. A virtuous circle of demand from multiple users of
property has been created. However, the progress in the digital world has made it possible to
access all these activities remotely to varying degrees.
The COVID-19 pandemic highlighted what has already been made possible by technological
advances, from working from home to entertainment at home. The benefits are well
recognized, not least the savings in terms of time and money from reduced travel. We think
the perceptions of such benefits are unlikely to change. In contrast, the increasingly talked
about frustrations of the COVID-19 imposed changes, however big or small, seem likely to
erode over time due to a combination of further technological advances and
demographics/the passage of time.
Ongoing improvements in augmented and virtual reality should enhance users’ experience of
We believe the temporary interacting with others online, whether from a work or entertainment perspective, as well as
“race for space” during making it more broadly accessible. At the same time, the proportion of the population more
COVID-19 lockdowns is comfortable in the digital world will constantly grow because of demographics. As a result, we
likely to be a slow, but think it likely people will become more comfortable at home more of the time, making the
steady long-term trend as nature of the property they live in more important, but the location less important.
people do more at home,
only partially offset by less Many of the jobs that cannot be done remotely will still most likely follow those who can work
need to store as many more remotely (such as a shift from the cities to the suburbs), to the extent that their jobs are
physical possessions in a not replaced by technology altogether. The very large differences in real estate prices between
digital world. the biggest cities and other locations would appear to be a strong catalyst for a slow unwinding
of the urbanization trends of the last few decades.
Similarly, more affordable
(and thus often less In terms of what it means for real estate, the need for housing is likely to grow at least as fast
accessible) locations could as populations, in our view. We believe the temporary “race for space” during COVID-19
potentially increasingly gain lockdowns is likely to be a slow, but steady long-term trend as people do more at home, only
favor (assuming digital partially offset by less need to store as many physical possessions in a digital world. Similarly,
connectivity is sufficient). more affordable (and thus often less accessible) locations could potentially increasingly gain
favor (assuming digital connectivity is sufficient). Even concerns about greater difficulties in
the delivery of physical goods becomes less relevant if 3D printers become commonplace.
For most other types of real estate, such changes would appear to create more headwinds.
For example;
 Retail property: the impacts of retailers needing less physical retail space are already
clearly evident, though how much less and the best format is still unclear. Conversion to
residential is an option, but often with relatively unattractive economics.
 Offices: we expect employers to find solutions to issues like less collaboration, difficulty
of training junior staff, and culture creation as augmented and virtual reality continue to
become more user friendly, greatly reducing their need for office space. The bigger
question is the timing and pace of such change. There is already evidence that some office
space is going to be converted to residential in big cities such as London.
 Logistics: the overall headwinds appear less significant, unless one takes into account 3D
printing becoming commonplace. However, owning the right type of warehouses in the
right locations on the right economic terms may prove challenging. The exceptionally high
prices currently paid in some leading global cities do not factor in the potential for a
reversal in their population trends in our view.
Property is a long-term  Self-storage: Fewer possessions in a more digital world risks a gradual decline in demand
investment and once the for self-storage space in the long term. Likewise, less need to move house with jobs in a
current flood of money WFH world would reduce another source of demand to use such space. However, most
seeking yield in this low important will be the shift in where their customers live as proximity has typically been a
interest rate environment key driver of customers’ decisions.
dries up, we expect such  Healthcare: Demographics in most countries point to a tailwind in tenant demand.
uncertain long-term Furthermore, while some services will increasingly be provided remotely, most appear
prospects to increasingly likely to continue to require attending in person. We also believe the issues around
influence the values of populations shifting to new locations is less significant given the residential nature of
properties that appear most many properties.
at risk from these trends.  Student housing: Given the typically young age of students, the argument for them
adopting online learning and avoiding the need to pay for student housing appears strong
at first glance. However, we see the appeal of using it as a first step to leaving the family
home and gaining independence as enduring.
We believe many of these changes will occur gradually, far slower than those in retail
properties in the U.S. and U.K. However, property is a long-term investment and once the
current flood of money seeking yield in this low interest rate environment dries up, we expect
such uncertain long-term prospects to increasingly influence the values of properties that
appear most at risk from these trends.

Restaurants: More digital on the menu

Since the onset of the pandemic, digital sales growth has been a key top line enabler for the
largest quick service restaurant brands, and the restaurant industry more broadly. COVID-19
accelerated restaurants’ digital transformation, as customer demand for convenience – and,
in the context of the pandemic, contactless experiences – drove restaurant brands to expand
their digital offerings. We observed restaurant companies accelerate their digital capabilities,
including enhancements for guests to seamlessly place off-premise orders for pickup or
delivery through mobile apps and online. Meanwhile, companies with technology and digital
platforms already in place, and in categories that played well to shifting consumer demand
amid the pandemic – including Domino’s, Chipotle and Wingstop – enjoyed faster recoveries
and stronger sales trends in 2020, given their ability to meet off-premise demand, while also
benefitting from harvesting customer data and building one-to-one relationships. We view
customers’ embrace of digital ordering during the pandemic as a meaningful acceleration of
long-term structural changes taking place within the restaurant industry. Over the long term,
we expect digital engagement to remain sticky – and grow further – continuing to be a top
line driver and enabler for the best-positioned brands. We believe scale brands that continue
to invest heavily in digital and technology will be well-positioned relative to peers with less
resources and/or focus in this critical area.
Exhibit 78 - Digital order mix, by brand for Starbucks, Chipotle, Wingstop, and Domino’s (U.S.)
Brands such as Chipotle and 80%

Wingstop saw a significant
increase in digital 70%
engagement, versus just
60%
prior to the pandemic.
50%
40%
30%
20%
10%
0%
SBUX CMG WING DPZ
Pre-COVID Current
Source: Company reports, RBC Capital Markets estimates; SBUX = Mobile Order Transactions as % of Total Transactions
Benefits of the digital channel

Over the course of the pandemic, digital ordering has been a tailwind for restaurants’ average
check growth, driven in part by larger order sizes and a higher average number of items per
check (also benefitting margins). Restaurants have also used digital-only promotions to
increase customer engagement, and as a result, drive higher frequency. Beyond driving sales
growth via higher average check, other benefits of digital includes operational efficiencies
(e.g., improved speed of service), and the development of key marketing tools. Regarding the
latter, in some cases restaurants are now beginning to collect first-party customer data that
they previously did not have. With these new forms of data, restaurants are able to create
one-to-one personalized marketing messages that aim to drive frequency by: 1) informing
customers about promotions; 2) announcing new products; and 3) engaging lapsed customers.

Within our coverage, both Starbucks and Domino’s are among those companies that have
historically demonstrated the benefits of strong digital ecosystems (e.g., mobile app, online
ordering), including sales growth and higher frequency. Another recent example includes
Chipotle. Since the onset of the pandemic, Chipotle has seen its digital sales mix increase
materially. Since the end of 2019, Chipotle’s digital sales mix has grown from approximately 20%
to 43% today (as of 3Q21), having peaked at nearly 61% during 2Q20. In our view, digital sales
was an important driver of Chipotle’s rapid sales recovery during the spring of 2020, as well as a
driver of ongoing growth, given that digital ordering reduces frictions historically associated with
the brand (e.g., long lines at peak order times), as well as more easily enabling delivery.
Growth of loyalty programs

Some of the restaurant industry’s most successful loyalty programs – notable examples include
those for Domino’s and Starbucks – have not only driven order frequency, but have also
provided restaurants with key insight into customer behavior for marketing purposes. Given
the recent rapid adoption by customers of restaurants’ digital ordering capabilities, additional
large, mature fast-food brands have rolled out their own – in some cases, long-awaited –
loyalty programs. McDonald’s, Wendy’s, Taco Bell and other large brands, have each launched
or enhanced loyalty programs over the last year-plus. A key initiative for quick-service
restaurants going forward will be continued focus on building their loyalty membership bases,
and further leveraging the programs to drive sales growth and gain insights.
Impact of digital on restaurant development and reimaging

Given the growth in digital ordering and the resultant impact on restaurants’ off-premise sales
channels, restaurant prototypes are now evolving towards digitally enabled formats or
features, including restaurants with dual drive-thrus, mobile pickup lanes and digital menu
boards. Major fast food brands, including quick service and fast casual concepts, have
introduced new prototypes that incorporate more technology throughout, highlight takeout
and delivery and improve operational efficiency. To name a few, Chipotle began opening
mobile order drive-thru lanes (Chipotlanes) pre-pandemic, helping to drive more higher-
margin mobile order pick-up transactions. Meanwhile, McDonald’s recently announced that it
has partnered with IBM to ramp up the development of automated drive-thru order taking at
scale, with IBM acquiring McD Tech Labs (formerly Apprente, which was acquired by MCD in
late 2019). Longer term, we expect to see greater integration – and utilization – of technology
within restaurants, not only on the customer-facing side of the business, but also in the back
of the house (e.g., inventory automation, robotics, etc.), which could potentially help offset
building labor cost pressures faced by restaurants today.
The emergence of virtual brands and ghost kitchens

In addition to the more widely known digital channels noted above, the prevalence of other
digitally-enabled channels – such as ghost kitchens and virtual brands – has also increased
recently. The rise of these formats (off-premise-focused channels, with food prepared in
central kitchens or existing restaurant kitchens that have excess capacity) ramped up during
the pandemic, and in some cases, have rapidly driven meaningful levels of sales. For casual
dining brands in particular, given how they are used (i.e. a majority dine-in) and frequency of
use (i.e. less habitually used than a QSR brand), virtual brands have been a significant driver of
off-premise sales. Most notably, Brinker International (EAT), the owner and operator of the
Chili’s and Maggiano’s brands, launched its first virtual brand concept It’s Just Wings in June
2020. In its first year, the It’s Just Wings brand generated ~$170M in total sales, while helping
Chili’s maintain an off-premise mix above 30% (vs. <20% pre-pandemic). On ghost kitchens,
specifically, Wendy’s (WEN) recently announced a development commitment by REEF
Kitchens to open and operate 700 delivery kitchens over the next five years in the U.S., Canada
and the U.K.

The Great Balancing Act
Table of contents
The Great Balancing Act – Introduction ............................................................................ 154
Autos: Electrification and battery demand ....................................................................... 156
Commodity Strategy: Critical minerals in critical places ................................................... 159
Mining: Got copper? The world needs more, but it’s getting harder to mine ................... 169
Industrials: Water scarcity ................................................................................................ 172
Energy & Utilities: Renewable natural gas ........................................................................ 174
Waste: There’s a new fuel in town ................................................................................... 177
Materials: Substrate wars ................................................................................................ 179
Marine sector: Shipping sector dominated by one topic – the path to net zero................ 182
Capital Markets: The green financing solution ................................................................. 187
Insurance: The first line of defense in climate change ...................................................... 188
Consumer: Luxury and retail resale .................................................................................. 196
Technology and Industrials: A renaissance in supply chain management ......................... 198
Manufacturing: Gone local – could growth rates double for capital goods companies? ... 201
Industrial Real Estate: Just In Case inventory ................................................................... 205
Biopharma: The global innovation bifurcation ................................................................. 207
Decentralized Finance: The “Conflict Economy” will need a currency ............................... 209
Software: Cybersecurity ................................................................................................... 210
Insurance: Cybersecurity and physical risk ....................................................................... 214
Biopharma: Amid global conflicts, IP matters, biotech an example .................................. 222
The Great Balancing Act – Introduction

The Great Balancing Act: An accelerating rate of change on multiple fronts has the potential
to create unprecedented instability. Conflicts will arise between countries, among sub-
populations and across regions on an increasing number of fronts, as well as behind the scenes.
On top of a pickup in cyberterrorism activity, we believe new forms of warfare – both physical
and cyber – and trade conflicts will arise, particularly related to climate change, including the
race for critical commodities to fuel the energy transition, agricultural nationalism and climate
change targets and policies. Even basic systems like democracy and capitalism are set to
We believe new forms of undergo dramatic change. Even within individual entities themselves, societies, corporations,
warfare – both physical and institutions and even individuals, will face internal tension balancing speed and near-term costs
cyber – and trade conflicts as they strive to make progress in this increasingly complex global context.
will arise, particularly
related to climate change, The new fronts
including the race for The increase in cyberterrorism activity, whether state-sponsored or otherwise, is an example
critical commodities to fuel of the changing landscape of conflict, and looking forward, we believe that the energy
the energy transition, transition will spawn a range of new conflicts on new battlegrounds that have the potential to
agricultural nationalism and further drive a wedge between countries, regions and demographics (e.g. generational, race,
climate change targets and socio-economic). A selection of themes that we see as having a multi-faceted potential for
policies. conflict include:
 Energy transition: We view the energy transition as driving a wide range of conflicts
including neo-colonialism driven by the need to secure critical commodities (e.g. rare earth
metals) and civil conflicts resulting from the impact of rising costs associated with paying for
energy transition investments.
 Agricultural nationalism: Particularly against the backdrop of changing climate patterns,
security of the food supply could become an increasing issue, especially when layering on
the increasing use of crops as feedstock into the fuel supply. How this burden is shared
across society could drive wider instability.
 Climate change: Rising trade conflicts stemming from countries that can readily achieve
climate change targets (e.g., border adjustment taxes), the plight of climate refugees from
a political and socio-economic perspective, and the approach to countries that cannot meet
global targets (or worse, are unwilling to meet global targets) are topics that we expect to
move to the forefront.
 Societal transitions: Aging populations, the fracturing of media and the widest gap in
income inequality since before World War I is creating many fault lines. Automation will start
to erode our ability to allocate societal resources purely by labor creating potential for new
dynamic economic systems, but these will come with friction. With democracies struggling
and the power of corporations growing, legislative and legal reforms are set to rise.
Rising tensions on existing battlegrounds

We see many existing areas of conflict intensifying, particularly as it relates to regional and
national spheres of influence, cyber-warfare and the socio-economic divide.
 Spheres of influence: We see the likelihood of increased conflict between nations and
their regional alliances on historical battlegrounds (e.g. east versus west, Middle East).
 Cyber-warfare: Although a relatively new front, we have seen the increasing impact and
number of instances of cyberterrorism activity, whether it be state-sponsored or
otherwise. We expect attacks on critical infrastructure and corporate assets to intensify.
 Class action: Socio-economic and racial divides could continue to widen driven by a host
of factors including politics and affordability (e.g. food, electricity, healthcare, education).
We believe that social media and the notion of the "splinternet" will exacerbate these
tensions.
We are all in this together – driving balance, collaboration and harmony

In many cases, we believe the roots of the rising conflicts stem from collective challenges for
the human race, and especially in those cases, we see a strong potential for collaboration and
balance (at least among segments of society) to come together to solve those problems.
 Rallying to solve existential risks to society: As we have seen with the coordination of
global resources and relative cooperation to fight COVID-19 (and as an example the speed
with which multiple vaccines were developed), we believe similar coordinated action will
But we also see a strong occur when society is faced with existential risks. In particular, we believe there will be
potential for collaboration significant advances in the global fight against climate change, which could come in the
and balance (at least form of new technologies, more efficient and lower-cost facilities to decarbonize (e.g.,
among segments of society) reducing the cost of renewable power) and broader societal support for policies to
to come together to solve accelerate decarbonization, even if they come at a higher cost for segments of the
these problems. population (e.g., higher taxes on the wealthy to fund these initiatives that benefit all of
society).
 Technological advancement will continue to be multi-national: There are numerous
instances of technological advancements that have come from research and development
located in multiple countries. We believe multi-national private enterprises and the
academic community will be key drivers of international cooperation to advance key
technologies.
 Extremism and the drive to the middle: While extremist views may persist, we have
observed numerous instances of the majority of the population rejecting the "radical"
right and left to support politicians and policies that straddle the “middle.” As we have
seen over time, we expect large segments of the population will continue to come
together and rally behind issues that benefit society – at a time where the power of
individuals has never been greater.

Autos: Electrification and battery demand

While regulatory requirements have been a large driver of battery electric vehicle (BEV) sales
thus far, ultimately, an inflection can occur not just when costs come down, but when the
consumer has a compelling product for whatever their use case and needs are. This means
offering across a wide range of segments and price points. Therefore, while we believe the
shift to BEVs is a consensus view, the timing/slope of the inflection will be consumer led. The
good news for electrification is more BEVs are coming. North America is, to date, less
regulatory driven than Europe or China so it is an interesting case to look at how BEVs may
evolve. According to IHS, the BEV model count for NA production will reach 116 in 2030 from
17 today while the share of BEV production in NA will increase from high-single-digit
percentage today to over 30% in 2030.
While we believe the shift to Exhibit 79 - North American battery electric vehicle (BEV) production, 2019–2030E
BEVs is a consensus view, Battery Electric Vehicle Production and Model Count BEV Share of Production and Volume per Nameplate
the timing/slope of the
2,500 90 70 14%
inflection will be consumer
Thousands
Thousands
80
led – this will occur not just 2,000
60 12%
70
when costs come down, but 50 10%
BEV Model Count

60
when the consumer has a 1,500
40 8%
50
compelling product for 40
1,000 30 6%
varied use cases. 30
20 4%
500 20
10 2%
10
7 9 18 32 49 61 70 76 80 81
0 0 0 0%
2019 2021 2023 2025 2027 2019 2021 2023 2025 2027
# of BEV models BEV volume % BEV production in NA Vol. per BEV nameplate
Source: IHS
Furthermore, IHS expects meaningful penetration in the three major regions for automotive,
North America, Europe and China. In the U.S., President Biden has stated a 40–50% BEV goal
by 2030. In Europe, under the “Fit for 55” program they are targeting a 55% reduction in CO2
from 2021 levels and 100% by 2035. Likewise, China (which has supported the “new energy
vehicle” market with subsidies to date) is also focused on tightening regulations.
Exhibit 80 - Regional powertrain technology outlook
North America Europe Greater China

3% 3% 9% 4% 18% 5% 3%
7% 19%
3% 8% 4%
8%
35% 32%
9%
CY20 41%
CY25 CY20 11% CY25 14% CY20 CY25 11%
62% 12%
50%
4% 16%
29% 49% 39%
70% 22%
17%
31%
14% 11% 28%
12% 3% 11%
53% CY30 CY30 CY30
12% 36% 16% 36%

6% 14%
Source: IHS

Electrification can have many geopolitical implications. For instance, China looks to be using
electrification as the medium to exert its power on the automotive (and other, think resources)
industries. As shown below, China is expected to increase its volume and scale advantage on
EVs relative to North America.
Exhibit 81 - Global EV production by region
Source: IHS
Perhaps one of the biggest risks to BEV adoption is battery supply. We estimate that there was
a little over 400GWh of lithium ion battery cell capacity in 2020. If we were to assume 95
The scale of investment million global light vehicles, 100% BEV penetration and a 70kWh/vehicle average suggests
required to meet battery 6.7TWh of capacity eventually needed for light vehicles alone. Note that many coming vehicles
supply is enormous and will have battery pack sizes closer to 100kWh, though we expect the average to come down as
have large geopolitical vehicles from a wide range of price points and segments come to market. Even a
ramifications. 60kWh/vehicle average would be 5.7TWh needed. Tracking capacity announcements is
difficult, but we believe there could be close to 4TWh of planned capacity by 2030.
However, this means that significant investment is needed to achieve the 2030 capacity and
beyond. We believe the average capex/GWh could be $75M. That would mean a nearly $475B
investment (assuming no efficiencies are made) just to satisfy light vehicle demand. Tesla has
suggested that 10TWh of capacity is necessary for 100% renewable energy across other
industries (commercial vehicle, other transport, stationary storage) which by our calculation
would require a nearly $750B capex investment; Tesla indicated 10TWh would require a total
$2T investment in materials, cell and battery manufacturing. This type of investment and the
resources required could have large geopolitical ramifications. For instance, President Biden
has made it a priority to 1) address vulnerabilities and opportunities for advanced batteries
and 2) secure the domestic production of batteries to shore up U.S. competitiveness.
U.S. companies are taking note. Ford is spending $7B (as part of an overall $11.4B spend with
partner SK Innovation) for U.S. cell capacity. This includes an all-new $5.6B campus in

Tennessee called Blue Oval City, a vertically integrated ecosystem for Ford to assemble an
expanded lineup of electric F-Series vehicles and will include a BlueOvalSK battery plant, key
suppliers and recycling. Then, in central Kentucky, Ford plans to build a dedicated battery
manufacturing complex (two battery plants) with SK Innovation for $5.8B called BlueOvalSK
Battery Park. The battery plant in Tennessee and two battery plants in Kentucky will produce
a total of 129GWh, which Ford says is enough for >1M battery packs including long-range packs
for SUVs and trucks. Overall, Ford plans to spend >$30B on BEV investments through 2025.
Meanwhile, GM plans to build four battery cell-manufacturing plants in the U.S. by mid-
decade, one each in Lordstown, OH and Spring Hill, TN with partner LG Energy Solutions and
two more whose locations have not yet been disclosed. GM plans to spend >$35B on electric
and autonomous investments through 2025. The company has also announced plans to be
carbon neutral by 2040, an aspiration to have all light-duty vehicles be EV by 2035, and a
commitment to source 100% renewable energy to power U.S. facilities by 2025.

Commodity Strategy: Critical minerals in critical places

This excerpt was written by Head of Global Commodity Strategy and MENA Research Helima
Croft and Commodity Strategist Christopher Louney, with the assistance of Megan Schippmann
(Senior Associate) and Brian Leisen (Associate) from RBC Capital Markets, LLC’s Global
Commodity Strategy team.
As Energy was to the fossil At COP26 leaders sought to reconcile differing priorities and policy approaches to reach all-
fuel age, Minerals will be important net zero climate goals – this work towards reconciling occurred against a
required to transition to a challenging social and economic backdrop with Europe and Asia facing a potentially escalating
cleaner future. energy crisis that could negatively impact GDP growth in the event of a cold winter.
While sun and wind is more Some have suggested that the energy transition will radically restructure the resource
evenly distributed across dependency relationships between producers and consumers that has been a hallmark of
the globe than oil or natural the fossil fuel age. Sun and wind are more evenly distributed across the globe than oil or
gas, the critical mineral natural gas, yet the critical mineral building blocks that will be needed to scale up cleaner and
building blocks that will be greener technology and infrastructure are still concentrated in a small number of nations,
needed to scale up cleaner more than a few of which have profound governance and security problems.
and greener technology and
infrastructure are still This poses a serious question: could the energy transition eliminate concentration risk or
concentrated in a small just swap out reliance on one set of commodities and commodity producers for another?
number of nations. International organizations such as the IEA and World Bank have already begun to stress the
need to focus on such minerals through their scenario analysis and we have already seen
As a result, we expect that members of the Biden Administration highlight this as an issue.
the geopolitics of
tomorrow’s commodity Given the scenarios laid out by these organizations to achieve a 1.5-2°C scenario, on its own
markets may lie in critical the green industrial revolution poses a quandary of how to source the amount of raw
minerals in critical places. minerals needed to deliver the rapid growth in electric transportation, wind turbines and solar
panels to reach net zero, and the necessary grid buildout to electrify new industries – never
mind the potential scarcity, geographical concentration, and other issues if known reserves
could end up being restricted by hosting nations for the purpose of national interest.
The production of critical minerals such as lithium, graphite and cobalt could need to grow by
For Required Commodity multiples, and even metals that we more traditionally think of in the commodity landscape,
Strategy and MENA which have their own supply and demand challenges, are also an important part of the picture
Research Conflicts and should not be disregarded in a conversation around critical minerals. Some metals are
Disclosures, please see more concerning than others – both due to their potential importance throughout the green
page 261. industrial revolution and because of geographical supply concentration – but this theme
generally underscores the types of tension that could typify the next decades as we
“Imagine” them out.
Political risks aside, reasons for supply chain disruptions could span from countries trying to
move up the supply chain, resource nationalism, geopolitical/trade conflict and more. While
there is an opportunity for resource rich countries here, there are also challenges in increasing
production in a responsible manner, equitably distributing the gains and benefits, avoiding the
resource trap driven mistakes of the past.
We believe the market should keep a particular eye on lithium, cobalt, graphite, and nickel
given the likely need for new production (versus current levels), importance to green
technologies as well as the geographical supply concentration. Manganese and rare earths
also should bear watching as should those already thought of as financial commodities
(copper, aluminum, zinc, etc.). Cost swings could hit policy priorities of a number of countries
and thus complicate already tenuous geopolitical relationships further as well as imperil
climate goals.
Such trends may drive a new round of investable commodities on futures exchanges and in
index investment alike, but suffice to say, the geopolitics of tomorrow’s commodity markets
may lie in critical minerals in critical places as we “Imagine” it.
Exhibit 82 - Risk and Development Index – Countries analyzed in this report

Corruption Perceptions
United Nations (2020)

Ease of Doing Business
Risk and Development

Human Development
International (2020)
World Bank (2019)
Equal Weighted %
Transparency
Index
Index
Afghanistan 173 19 0.511 13%

Argentina 126 42 0.845 51%
Australia 14 77 0.944 92%
Bolivia 150 31 0.718 35%
Brazil 124 38 0.765 45%
Canada 23 77 0.929 89%
Chile 59 67 0.851 74%
China 31 42 0.761 63%
DRC 183 18 0.480 9%
Estonia 18 75 0.892 87%
India 63 40 0.645 49%
Indonesia 73 37 0.718 51%
Japan 29 74 0.919 87%
Madagascar 161 25 0.528 19%
Malaysia 12 51 0.810 73%
Mexico 60 31 0.779 54%
Mozambique 138 25 0.456 18%
Namibia 104 51 0.646 47%
Peru 76 38 0.777 54%
Philippines 95 34 0.718 45%
Russia 28 30 0.824 62%
Tanzania 141 38 0.529 28%
Turkey 33 40 0.820 65%
United States 6 67 0.926 88%
Vietnam 70 36 0.704 50%
Average 79.6 44.12 0.740 #DIV/0!
Note: End scale – higher is better, color scale lighter color corresponds to high end of scale. Selected countries determined by being listed in this piece and data being available. Raw scores – WB: lower is better, TI:
higher is better, UN: higher is better. Risk and Development % scores – equal weighted after adjusting to % scale. Source: World Bank, UN, Transparency International, RBC Capital Markets
Critical minerals, such as Energy Transition Snapshot: Critical Minerals in Critical Places
graphite, lithium, and At COP26, global leaders sought to reconcile differing national priorities and policy approaches
cobalt would require to reaching the all-important net zero climate goals against a challenging social and economic
production to grow by over backdrop. Europe and Asia are currently in the throes of an escalating energy crisis that could
500% by 2050 to meet negatively impact GDP growth in those regions if it is an especially cold winter and there is
demand for clean energy growing concern that there could be a populist backlash against renewables along the lines of
technologies. what was witnessed in France in 2018 with the yellow vests protests as consumers struggle to
afford rising utility bills. One issue that we believe will take on ever increasing importance in
And yet, much of the the coming years is access to the critical minerals that will be required to build out the clean
current critical mineral electricity infrastructure. According to the World Bank, critical minerals, such as graphite,
production that will be lithium, and cobalt would require production to grow by over 500% by 2050 to meet demand
needed to scale up electric for clean energy technologies. Some have suggested that the energy transition will radically
vehicle use globally is restructure the resource dependency relationships between producers and consumers that
concentrated in a small has been a hallmark of the fossil fuel age. With sun and wind more evenly distributed across
number of nations, more the globe than oil and natural gas, no one region or set of suppliers should able to garner an
than a few of which have outsized share in the market according to such a line of argument. And yet, much of the current
profound governance and critical mineral production that will needed to scale up electric vehicle use globally is
security problems. concentrated in a small number of nations, more than a few of which have profound
governance and security problems. In our view, this poses serious questions about whether

the energy transition will really eliminate concentration risk or just swap out reliance on one
set of commodities and commodity producers for another.
For example, will the Democratic Republic of Congo (DRC), the world’s largest cobalt producer,
gain outsized influence in the Net Zero narrative?
The Central African nation, which accounts for 70% of current cobalt production and is home
to 50% of cobalt reserves, could serve as the case study for the “resource curse.” The country
experienced such a brutal form of colonial rule based on natural resource exploitation that it
purportedly served as the inspiration for Joseph Conrad’s “Heart of Darkness.” The demise of
Belgian colonial rule sadly did not result in a reversal of the DRC’s fortunes. Mobutu Sese Seko
absconded with much of the country’s mineral wealth, leaving its citizens facing abject poverty
amid some of the world’s worst human development indicators. Mobuto’s demise also
brought little respite, as the country would become the scene of one of the world’s worst wars
at the dawn of the new millennium as the lethal dynamics unleashed by the Rwandan conflict
spread across the border to eastern Congo. Eight African nations dispatched troops to DRC in
a conflict that was funded by largely illicit mineral extraction. Over five million people would
die between 1998 and 2007 from the fighting as well as the hunger and disease that was a
direct by product of the ruinous war. DRC’s current leader, Felix Tshisekedi, came to power
following a controversial backroom election deal in 2018 worked out with then head of state
Joseph Kabila in order to prevent Martin Fayulu from taking power. Despite the rather
inauspicious start, Tshisekedi is vowing to make a sharp break with the country’s troubled past
and has pledged to improve governance and accountability. After sidelining the Kabila
holdovers and consolidating power in April, Tshisekedi has moved to review some of the most
important mining contracts, including the $6bn deal signed with China in 2008.
China has provided substantial infrastructure funds and loans to many African nations in return
for access to their natural resource endowments, without the conditionality attached to
budgetary support from multilateral financial institutions. Such relationships with key critical
mineral producers have helped China consolidate its control over the supply chain for EVs,
much to the concern of Washington and elsewhere. Some experts have suggested that the
Biden Administration actively encouraged Tshisekedi to review the Chinese deal, which covers
The green industrial both copper and cobalt. The IMF, for its part, pressed the Congolese government to reduce
revolution may merely the size of the deal from $9bn to $6bn, making such a reduction a condition for a $1.5bn credit
present a shift of geopolitics facility. China’s decision to swiftly recognize the Taliban government in Afghanistan may also
away from “energy in part be linked to a desire to access the country’s critical mineral endowment. A 2010
commodities” more Department of Defense Memo called Afghanistan the “Saudi Arabia of lithium.” Global
squarely towards demand for lithium and other critical minerals is set to increase dramatically as countries seek
“minerals” throughout an to meet climate goals. Afghanistan has been unable to develop its critical mineral endowment
energy transition and green because investors and operators have avoided the country given the serious security and
industrial revolution. infrastructure challenges. On the other hand, the Chinese may be less skittish than Western
investors and Beijing’s decision to recognize the Taliban may involve some calculation about
being able to tap this resource to further solidify its control over the entire renewables value
chain.
Which Minerals and Where?

While the transition to more renewable sources of power and transportation technologies
may seem to potentially present a more benign geopolitical dynamic versus the sometimes
fractious nature of geopolitics in fossil fuel markets, the green industrial revolution may merely
present a shift of geopolitics away from “energy commodities” more squarely towards
“minerals” throughout an energy transition and green industrial revolution. The minerals
critical to build and propel the transition forward are indeed natural resources, and in some
cases, may face concerns and risks not dissimilar to that seen in the energy space today. The
challenge is to avoid at least some aspects of the resource trap that has ensnared aspects of
fossil fuel production when it comes to the minerals of the energy transition if the world is to
make considerable progress in the face of climate change.
Now which technologies are set to drive this growth in demand for critical minerals?
International organizations such as the IEA and World Bank have already begun to stress the
need to focus on such minerals through their scenario analysis and we have already seen
members of the Biden Administration highlight this as an issue. On its own, the green industrial
revolution poses a quandary of how to source the amount of raw minerals needed to deliver
the rapid growth in electric transportation, wind turbines and solar panels to reach net zero,
and the necessary grid buildout to electrify new industries – among many other (and very
important) things. The following information is derived from the International Energy Agency
(IEA) in their scenario analysis for the World Energy Model.
 Stated Policies Scenario (STEPS): In the IEA projections, the STEPS scenario offer a “more
conservative benchmark” that takes into account existing policies and those that are in
process of actual implementation. The modeling for these scenarios starts at ground level
and goes on a sector by sector basis for countries.
 Sustainable Development Scenario (SDS): The SDS is formulated on the basis of an
increase in clean energy policies being enacted in countries globally to reach Paris
Agreement goals. This scenario seeks data modelled consistent with a 1.65°C rise in
temperature (to remain below a 2°C rise for many global warming mitigation goals). For
2021, SDS also includes the sustainable development packages announced by countries in
the wake of COVID-19.
 Net Zero Emissions Scenario (NZES): This is the ambitious, narrow pathway laid out by the
IEA for the global energy sector to hit net zero target by 2050. Further, it would also meet
UN Sustainable Development Goals and is modelled to limit global temperature rise to
1.5°C. This scenario depends on strong cooperation between countries on net zero goals.
The growth of operating The growth of operating renewable power required to meet net zero, or even sustainable goals
renewable power required is substantial to say the least. In the IEA’s analysis, the average annual capacity additions for
to meet net zero, or even the sustainable development scenario would be 230 GW photovoltaic solar, 118 GW wind, and
sustainable goals is 62 GW of other renewables this decade. For the steeper net zero emissions scenario it would
substantial. be 303 GW, 171 GW, and 77 GW respectively. For comparison, the global annual average
capacity additions for all three of these categories between 2010 and 2019 was 145 GW. In
the more near term forecasts, IEA projects solar deployment to further surpass records and
reach 162 GW by 2022 – which would be about 50% more than the pre-COVID-19 levels in
2019. We note this because it is clear that solar PV deployment is fast-tracked in the near term
as well and will likely provide a continuous, immediate pull on critical minerals resources.

Exhibit 83 - Average annual renewable capacity additions by IEA scenario
GW Avg. annual renewable capacity additions (IEA Scenarios)

600
500
Solar
400 Wind
Other renewables
300
200
100
0
2010-2019 2020-2030 Sustainable 2020-2030 Net Zero Emissions
Development Scenario Scenario
Source: IEA, RBC Capital Markets
Global wind, too, saw astronomical growth recently with a +90% growth rate in 2020 to reach
114 GW in IEA data. While the next few years of wind capacity growth is not expected to match
the rate of solar, it is still set to be more than 50% higher in 2021/2022 vs the 2017-2019 average
seen globally. For electric vehicles in the Stated Policies Scenario, the global fleet grows from 11
million in 2020 to nearly 145 million by 2030 (and are projected to then make up 7% of global
fleet). In the SDS, the global EV fleet would reach 230 million vehicles by 2030 (12% of projected
global fleet). For background, the IEA incorporates population and energy demand assumptions
by region and integrates an assumed economic growth of 3% on average annually through 2050
as a constant across the scenarios.
Exhibit 84 - Global EV sales by IEA scenario (2025 and 2030 focus)
Moreover, beyond the minerals used in production of the renewable energy technologies
themselves, a large demand driver will be the battery storage required to integrate the clean
energy growth if not simply for the purposes of reliability. The growth of the energy storage
market will be a major linchpin to critical mineral demand. In RBC’s Energy Storage Primer, it is
highlighted that the energy storage market could grow to 220 GW over the next decade, and by
1,676 GW through 2050. This would be relative to the 2021 11 GW market. In CAGR terms, this
is 30.2% growth through 2030 and 16.9% growth through 2050. The US market alone could
attract upwards of $120bln in investment to achieve growth rates. Moreover, Lithium-ion (Li+)
Beyond the minerals used in configurations of electrochemical battery technology are likely to remain dominant for energy
production of the storage systems due to their unparalleled battery densities and relative cost profiles (RBC
renewable energy primer). Of the Lithium-ion configurations available currently for large scale grid operations,
technologies themselves, a Lithium Nickel Manganese Cobalt Oxide (NMC) and Lithium Iron Phosphate (LFP) tend to be the
large demand driver will be largest competitors due to balanced profile and relatively reasonable cost structure.
the battery storage required
Clearly these scenarios depend on the balancing of cooperation and competition between all
to integrate the clean
countries globally in battling climate change and reducing emissions, inclusive of the Great
energy growth.
Power Competition between the U.S. and China. In many regards this relationship between
the world’s two largest economies may typify much of the concerns we are talking about in
this piece with China having been cited as one of the foremost challenges for U.S. policy.
Likewise, China is currently the world’s largest CO2 emitter (the U.S. is second in that regard)
and features prominently in foreign policy discussions, whether concerning the green
industrial revolution, climate change, commodities, trade and more, and of course, critical
minerals. It is a relationship not without its challenges, particularly with the climate challenge
at hand, as the country features prominently in many other aspects of Washington policy,
geopolitics broadly, and mineral commodity markets. As such, the energy transition and green
industrial revolution may be more similar to energy commodity markets in that regard that
some are willing to admit.
Clearly these scenarios depend on the balancing of cooperation and competition between all
countries globally in battling climate change and reducing emissions, inclusive of the Great Power
Competition between the US and China. In many regards this relationship between the world’s
two largest economies may typify much of the concerns we are talking about in this piece with
China having been cited as one of the foremost challenges for US policy. Likewise, China is
currently the world’s largest CO2 emitter (the US is second in that regard) and features
prominently in foreign policy discussions, whether concerning the green industrial revolution,
climate change, commodities, trade and more, and of course, critical minerals. It is a relationship
not without its challenges, particularly with the climate challenge at hand, as the country
features prominently in many other aspects of Washington policy, geopolitics broadly, and
mineral commodity markets. As such, the energy transition and green industrial revolution may
be more similar to energy commodity markets in that regard than some are willing to admit.
Mineral cost pressures, and
even inputs beyond just As we mentioned at the outset, according to a World Bank report, “the production of minerals
critical minerals, have the such as graphite, lithium and cobalt could increase by nearly 500% by 2050 to meet the
potential to impact buildout growing demand for clean energy technologies” as minerals and metals are needed to achieve
and drive tensions. The a below two degree Celsius future laid out in the scenarios of leading international
minerals going into solar organizations (World Bank, IEA, etc.). Likewise, metals that we more traditionally think of in
panels, wind turbines, the commodity landscape, which have their own supply and demand challenges, are also an
lithium-ion batteries, and important part of the picture and should not be disregarded in a conversation around critical
EV charging units all bear minerals. According to BHP, up to four times as much copper is used in electric vehicles
watching. compared to petrol-based cars, and while it can be and is one of the most recycled metals in
the world, that and the implication of an expanding electric grid (distribution lines, generators,
transformers) and the electrification of everything (residential, commercial, consumer
products, vehicles, etc.) point to heightened copper demand in the future. Steel will also be
needed to build new green infrastructure such as wind turbines and there are a number of
metals that come to mind when it comes to increasing electrification and growing clean energy
infrastructure generally. Nickel is vital in the making of lithium-ion batteries used in EVs, which
remains the favored battery chemistry broadly. As it stands, there are a host of minerals that

will face growing demand in the green industrial revolution with EVs, batteries and zero or low
emissions power generation as examples.
Exhibit 85 - Share of mineral demand in IEA scenarios
Share of mineral demand from Solar Share of Mineral Demand from Energy Storage
Photovoltaic (Inner) and Wind (Outer) under the under IEA 2DS through 2050 (World Bank, %)
IEA 2DS through 2050 (World Bank, %)
Aluminium Iron Graphite Nickel
Copper Other Cobalt Lead
Manganese Lithium
Solar other includes: Silver, Other
Lead, Zinc, Molybdenum,
Indium, Nickel; Wind other Other includes: Vanadium,
includes: Aluminum, Lead, Iron, Aluminum, Chromium,
Chromium, Nickel, Copper, Zinc
Manganese, Molybdenum,
Neodymium
Source: World Bank, IEA, RBC Capital Markets
Some metals are more concerning than others – both due to their potential importance
throughout the green industrial revolution and because of geographical supply concentration,
particularly from the perspective of Western Democracies, and the United States specifically.
This theme underscores the types of tension that could typify the next decades as we
“Imagine” them out. From a US perspective, lithium for example has very limited supply chain
activity domestically (to the point where the USGS even withheld domestic production data in
its January 2021 Mineral Commodity Summary so as to not disclose company proprietary
data). Lithium is key because 71% of end-use lithium goes to batteries which has grown in
recent years due to use of lithium in electronics, tools, vehicles and grid storage. According to
USGS, there are five mineral operations in Australia, Argentina and Chile have two brine
operations each, and just two brine and one mineral operation in China accounted for the
majority of world lithium production. Given the aforementioned importance of the batteries
that could power much of the energy transition, lithium supply security has become a top
strategic priority for technology companies (and others), which has further put it on the radars
Some metals are more of governments. While there are notable reserves in both the United States and Canada,
concerning than others – combined it is still less than that in China, Argentina, and of course Australia. In terms of
Lithium (71% of end-use resources, lithium resources exist in the US and are high in Bolivia, Argentina, Chile, United
lithium goes to batteries), States, Australia, China, Congo, and Canada and elsewhere. Of course, there are substantial
Cobalt (70% of global risks and other chemistries are possible, lithium-ion batteries are the favored chemistry as we
production in DRC), have highlighted above in key applications.
Graphite (60% of total
world output in China), Staying on the topic of batteries, cobalt is yet another metal of concern. Mined production of
Nickel, and rare earths cobalt is highlighted as concentrated in DRC – as a reminder, about 70% of global production
(highly concentrated in and in terms of refining/processing -- and China is nearly as dominant with about 65% of
China). processing capacity. China’s consumption is high as well, with more than 80% of its
consumption going to rechargeable batteries. While resources exist in a number of countries
(including in the United States both byproduct and otherwise) reserves are currently
concentrated in the DRC, with Australia a distant second. Cobalt content in batteries is being
reduced -- in some cases, even cobalt-free substitutes that use iron and phosphorus (USGS),
but we cannot write off the criticality of cobalt.

Graphite is yet another mineral with highly concentrated supply and immense importance to
cleaning up emissions in the transportation sector through electric vehicles. While not
produced in the United States in 2020 (natural graphite), applications for graphite are heavy
in the EV sector where it is used for batteries, brake linings. It is also used in lubricants,
powdered metals, refractor applications and steel making. It is recyclable, but the principal
import sources of natural graphite into the United States were China, Mexico and Canada, the
foremost of which, China, is the world’s leading graphite producer, at over 60% of total world
output, while North America (i.e. Canada and Mexico) only produced about 2% (USGS) - note
that two companies are potentially developing graphic projects in Alabama and Alaska. A
number of countries stand out globally in terms of both reserves and resources (Madagascar,
Mozambique, Namibia, and Tanzania deposits were being developed). To underscore the
importance, while currently, chip shortages have shown some of the supply chain
vulnerabilities in the auto sector, graphite supply concentration is key given its importance to
EV production. In the US, automaker lithium-ion electric vehicle battery producers are key use
cases to watch going forward with one US plant expected to require 35,200 tons per year of
spherical graphite to use in anodes for lithium-ion batteries.
Exhibit 86 - Minerals Used

250
Minerals used (IEA, kg/MW)
Minerals used in electric cars vs conventional Natural gas
cars (IEA, kg)
200 Copper Nickel
Coal
Manganese Cobalt
Rare earths Zinc
150 Copper Nickel Nuclear Chromium Molybdenum
Manganese Cobalt Others Silicon
Rare earths Zinc
Graphite Lithium Solar PV
100
Others
Onshore wind
50
Offshore wind
0
Electric Car Conventional Car 0 5,000 10,000 15,000 20,000
Source: World Bank, IEA, RBC Capital Markets

Exhibit 87 - USGS Mineral Commodity Summary Data on 2020 production versus reserves
USGS Mineral Commodity Summary Data (top five reserve countries, mln metric tons)
United States
Mozambique
Madagascar
Philippines
Argentina
% of total
Indonesia
Australia
Vietnam
Countries
Mexico
Turkey
Russia
China
Brazil
Cuba
Total
Chile
Peru
DRC
Reserves
Cobalt 1.40 0.50 3.60 0.26 0.25 7.1 85%
Copper 88.00 200.0 53.00 92.00 61.00 870.0 57%
Graphite (nat) 70.00 73.00 26.00 25.00 90.00 320.0 89%
Lithium 1.90 4.70 9.20 1.50 0.75 21.0 86%
Nickel 20.00 16.00 5.50 21.00 6.90 94.0 74%
Rare Earths (REO equivalent) 21.00 44.00 6.90 12.00 22.00 120.0 88%
Zinc 68.00 44.00 22.00 20.00 22.00 250.0 70%
2020 mine production
Cobalt 0.01 0.00 0.10 0.00 0.01 0.1 82%
Copper 0.87 5.70 0.69 2.20 0.85 20.0 52%
Graphite 0.10 0.65 0.05 0.12 0.00 1.1 83%
Lithium 0.01 0.04 0.02 0.01 W 0.1 95%
Nickel 0.17 0.07 0.05 0.76 0.28 2.5 53%
Rare Earths (REO equivalent) 0.00 0.14 0.00 0.00 0.00 0.2 62%
Zinc 1.40 4.20 0.60 1.20 0.26 12.0 64%
Note: W – withheld by USGS. Source: USGS, RBC Capital Markets
Nickel is another metal, albeit one far more familiar to commodity market participants, as it is
indeed a traded commodity like copper, aluminum, zinc, and silver, which will also play a role
in the green industrial revolution. Nickel is used in wind generation technologies and in
minimal amounts in solar, but nuclear applications, if such are built out, do use nickel in a
higher quantity per megawatt than coal or natural gas generation. Like a number of minerals,
the US does have domestic production and reserves, but those are dwarfed by that in places
like Indonesia, Australia, Brazil, Canada and China. Importantly, nickel is no stranger to
geographical concentration risk which we will touch on in a moment.
Rare earths, which oft get the critical mineral limelight, fit this mold of risks in the energy
transition. According to the USGS, there was some production of rare earths in the United
States (38kmt of rare-earth-oxide equivalent). Limited quantities of rare earths are recovered
from recycling batteries, permanent magnets and fluorescent lamps, leaving imports to plug
the gap globally. In the US, 80% of rare-earth compounds and metal imports were from China,
with 5% from Estonia and some from Japan and Malaysia. The US government does maintain
a stockpile. According to the USGS, reserves are most plentiful in China, far ahead of Vietnam
and Brazil, as well as Russia, India and the United States. In terms of resources, while rare
earths are relatively abundant in the earth’s crust, minable concentrations are less common,
making them “rare” earths indeed.
One refrain that should be clear is that China has a clear dominance in a number of critical
mineral supply chains (in some cases worryingly so amid growing demand for green energy
infrastructure, semiconductors, technological solutions to the world’s biggest challenges, and
the types of geopolitical conflict that have typified other commodity markets). China’s
international relationships with the rest of the world are not without their tripwires. It is true
that China has become more involved internationally as it stepped into some of the vacuums
of interest that emerged and/or grew during the Trump administration, and it has long had a
lead in development relationships with key mineral producers around the world.

The geopolitical risks for critical minerals play a greater importance as more of the supply chain
is concentrated in a smaller number of countries. Global cobalt supply serves as a particularly
good example as there are various political challenges and potential fail points that could arise
and significantly disrupt supply chains key to global energy transition targets. DRC's President
Felix Tshisekedi declared a month of martial law in two eastern provinces recently as a surge
of violence left hundreds of people dead. Additionally, over 40% of DRC mining capacity is
The trajectory of demand,
controlled by Chinese mining companies. Moreover, when looking at refining in terms of
ESG-friendly sourcing,
battery application China makes up ~80% of total global output of cobalt sulphate and oxides.
supply chain concentration
The trajectory of demand, ESG-friendly sourcing, supply chain concentration and US-China
and U.S.–China relations all
relations all point to increasing friction points that would result in a larger geopolitical factor
point to increasing friction
for critical minerals and potential disruption. We've already seen examples of where supply
points that would result in a
chain dominance by a single country has been used as leverage during rounds of political
larger geopolitical factor for
brinkmanship. In 2011 China halted rare earth metal exports to Japan (roughly 50% of the
critical minerals and
country's imports) for 2 months following a territorial dispute over the Senkaku Islands. More
potential disruption.
recently, trade conflicts like the ongoing trade war between the US and China since 2018 or
the US Trump-era steel tariffs all have more severe effects when the majority of global supply
is sourced from a single nation. Given the expected scarcity, even known reserves could end
up being restricted by host nations for the purpose of national interest. Mexico has already
worked on passing legislation that would restrict future mining operations for select
government-designated critical minerals, reserving them exclusively for government
development. Political bouts aside, reasons for supply chain disruptions could simply be
countries trying to move up the supply chain, capturing a larger part of the value add in
country. Indonesia has banned the export of unrefined copper and nickel to ensure refining
remains in country. Regardless of the underlying cause, the finite sourcing, inherent scarcity,
and rapidly rising demand will require a more vigilant political lens as we move further into
the transition in the coming years.
Exhibit 88 - Critical mineral needs
Challenges, Opportunities, and Duties as we Imagine the Future

While there is an opportunity for resource rich countries here, there are also challenges in
increasing production in a responsible manner, equitably distributing the gains and benefits,
avoiding the resource trap driven mistakes of the past, and supporting the energy transition
with stable and responsibly sourced supplies.

To that end, The Climate-Smart Mining Initiative is important, and necessitates international
cooperation. This in itself implies that geopolitics and US-China relations are important as it is
hard to ignore the idea that at least some key parts of the road to the green industrial
revolution run through China. Historically, the conversation about natural resource security
Given the technological and has largely focused on energy in the Middle East, but we think minerals will be the next
industrial buildout important chapter, particularly for those critical to the green industrial revolution. China’s
necessary, we would keep a large market share in various parts of the supply chain reinforce the idea that Washington
particular eye on lithium, policy on China is key, as are global geopolitics given the increasingly universal policy priority
cobalt, graphite, and nickel of meeting the climate challenge. Likewise, there will be as many price implications as there
given the likely need for are geopolitical implications from the growth in demand and the need to source more minerals
new production (versus in more places – especially since it needs to be done in a socially and environmentally
current levels) as well as the conscious way if the world is not to repeat past mistakes or compound existing problems in
geographical supply some current producing regions.
concentration.
Through the industrial revolution, given the technological and industrial buildout necessary,
Manganese and rare earths we would keep a particular eye on lithium, cobalt, graphite, and nickel given the likely need
also should bear watching, for new production (versus current levels) as well as the geographical supply concentration.
as should those already Manganese and rare earths also should bear watching as should those already thought of as
thought of as financial financial commodities (copper, aluminum, zinc, etc.). In some cases, where there may even be
commodities (copper, enough mined material, a potential lack of diverse capacity to process those metals into
aluminum, zinc, etc.). specialist chemicals could pose problems. In either case, swings to costs could hit policy
priorities of a number of countries and thus complicate already tenuous geopolitical
relationships further as well as imperil goals in certain places (such as the phasing out of
internal combustion engine vehicles) simply due to supply and cost of key minerals. Whether
the future is distributed globally, or concentrated in the supply and processing capacity in a
handful of places, the path to a green future lies in new and existing minerals. This may
potentially drive a new round of investable commodities on futures exchanges and in index
investment alike, but suffice to say, the geopolitics of tomorrow’s commodity markets may lie
in critical minerals in critical places as we “Imagine” it today.

Mining: Got copper? The world needs more, but it’s getting harder to mine
Copper supply growth for the energy transition
For Required Equity Renewable energy, EVs and grid spending add a new source of copper demand growth, and
Research Non-U.S. Analyst we estimate copper supply needs to grow 30% by 2030 to support the energy transition. This
and Conflicts Disclosures, is set against an aging supply base and a secular trend of declining ore grades while increased
please see page 259. ESG focus make permitting and social license more challenging and adds costs to mitigate
environmental impacts.
Exhibit 89 - Copper has a key role in energy transition which will require significant supply growth
35,000
Annual copper consumption has grown at 2.5% on average Supply Gap
33,000 7Mt
over the last 40 years
31,000 Trend economic growth would imply a growth rate of 2.1%
29,000 Our estimates for a 2.8% growth rate include the incremental
Copper Demand (kt)
copper demand from EV's and electrification

27,000
25,000
23,000
21,000
19,000
17,000
15,000
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Trend economic growth demand EV demand
Renewable energy demand Additional electrical grid demand
Copper supply (includes sanctioned projects)
Source: Wood Mackenzie, RBC Capital Markets estimates
The growth paradox

Miners remember all too well that the ‘production growth at all costs’ mindset in the
commodities super cycle from 2000–2012 ended with a 5-year supply glut, cost overruns,
strained balance sheets, and management turnover. The current mantra is to balance
shareholder returns with measured growth, but a pivot towards more growth is likely required
to fill the supply gap noted above. Current high metal prices are likely to spur further
investments but a key question is whether this will be enough to avoid demand destruction.
Exhibit 90 - Industry still recovering from prior capex boom and weary to repeat fallout, while secular grade decline continues
$5.00 $40 250.00 1.00
$35
$4.00 200.00 0.90
$30
$25 0.80
$3.00 150.00
$20 0.70
$2.00 $15 100.00
0.60
$10
$1.00 50.00 0.50
$5
$0.00 $0 0.00 0.40
2000 2005 2010 2015 2020 2025 2030 2000 2005 2010 2015 2020 2025 2030
Copper Price $/lb Copper Expansion Capex $B Average costs (C1 plus sustaining) Average Mined Grade
Source: Wood Mackenzie, RBC Capital Markets estimates for future years

Let’s get political

China has an outsized influence on the copper market representing 50% of demand and 46%
of refined production and despite only 8% of mine supply, they have made several investments
in foreign mining operations. Governments in key producing countries, namely Chile and Peru,
have proposed higher taxes on the mining industry, and this raises interesting questions
around the relative competiveness of certain regions with potentially growing political risks.
Exhibit 91 - Proposed tax changes in key producing areas such as Chile and Peru raise questions about investment risk premia
2021 Mine Production Copper Projects

Russia Russia Africa
Africa Oceania
5% 8%
Oceania 9% 13% 3%
Asia
4%
10%
North America North America Europe
11% Asia 20% 1%
14%
Middle East
2%
Europe Middle East
5% 3%
Latin America
Latin America
50%
42%
Source: Wood Mackenzie, RBC Capital Markets estimates
Technology friend or foe?

The effort to use technologies to lower costs, increase productivity and improve safety at mine
sites has accelerated in recent years. Autonomous trucks, AI to analyze data, ore sorting, new
metallurgical recovery processes are just a few examples that are driving measurable change;
however, this has largely just offset rising costs elsewhere. On the demand side, if the mining
industry cannot supply enough copper, there is potential for substitution and thrifting of
copper with technological innovation. Japanese HVAC manufacturer Daikin’s recent
announcement to substitute aluminum for copper in air conditioners, and car part’s maker
Aptiv’s concepts to lower copper contained in an EV to be more in line with an ICE, are two
recent examples that underscore this potential risk.

Industrials: Water scarcity

The Earth has essentially the same amount of water today that it had two billion years ago.
Fresh water, essential to life, represents just 3% of the water on Earth, with much of it
inaccessible in the polar icecaps and permafrost. The troubling collective impact of population
growth, industrialization, pollution, climate change, and an overall lack of water stewardship
poses a palpable threat to the planet’s relatively fixed supply of fresh water. Projecting out
these mounting threats, the unthinkable Malthusian question needs to be asked: could we
eventually run out of water? The short answer is unlikely, at least not in the foreseeable future
assuming advances in smart/digital water systems, water reuse, and conservation. However,
over the next 5–10 years we expect to see water scarcity issues in national headlines with
alarming frequency. In our view, the implications of water scarcity are far-reaching, and can
be grouped into (1) economic, (2) geopolitical, and (3) health/humanitarian categories.
Water supply & demand imbalances

Water supply and demand is ultimately a local issue. The adage is that water is in short supply
where it is needed/demanded the most, and in overabundance (think flooding) where it is not
wanted or needed. North America has an enviable position of having access to 15% of the
Over the next 5–10 years,
world’s renewable fresh water supply to support just 8% of the world’s population. In contrast,
we expect to see water
China has 21% of the world population, but only 7% of the water supply, according to the UN.
scarcity issues in national
Roughly 70% of the global demand for fresh water is for agriculture, but more than half of it is
headlines with alarming
wasted from evaporation and leaks. Industrial use of water accounts for 20% of water demand,
frequency.
with residential at 10%. Globally, water consumption is doubling every 20 years, more than
At the current pace of two times population growth. Water demand in the U.S. has tripled in the past 30 years, while
demand, there will not be population growth has been just 50%.
enough freshwater
available to meet global Economic implications of water scarcity
energy needs by 2040. Expanding industrialization, especially in emerging markets, is stressing already-limited water
resources. In many cases, reliable access to water supplies will be a limiting factor to where
many water-intensive businesses will be able to operate. Businesses that need access to water
include food & beverage, semiconductor, pharma, mining, chemical and petrochemical,
among others. Water scarcity can limit the industrialization of emerging markets. Developing
markets today only use 11% of water for industrial use versus 42% for developed countries.
Water–energy nexus
Energy production is the second largest demand for water resources globally, after agriculture,
although most of the water used is returned to its source. The International Energy Agency
estimates that at current demand levels, water for energy production will increase by +60%
over the next 25 years. At this pace, there will not be enough freshwater available to meet
global energy needs by 2040.
Geopolitical implications of water scarcity

Water insecurity multiplies the risk of geopolitical conflict. Since freshwater is a non-
renewable and scarce resource, it should come as no surprise that water is the center of many
geopolitical disputes today. The flash points are likely to be where countries share a river or
aquifer. According to the UN, there are 276 transboundary river basins and 200 transboundary
aquifers. Notable water disputes include the Middle East, where disputes stemming from the
Euphrates and Tigris Rivers involve Turkey, Syria, and Iraq. The Jordan River conflict pits Israel,
Lebanon, Jordan and the State of Palestine. Water-related disputes over shared water sources
include ownership, fishing rights, and pollution.

Humanitarian/health implications
Food price spikes caused by droughts can inflame conflicts. Where economic growth is
impacted by rainfall, episodes of droughts and floods have generated waves of migration and
spikes in violence within countries. The lack of clean water has a domino effect on
communities. Local commerce declines, incomes go down, tax revenues decrease, population
declines due to lack of employment opportunities, and cities and the surrounding communities
shrink.
Solution set to water scarcity

There is no silver bullet solution, but part of the answer to water scarcity starts with increased
investment in smart/digital systems along with artificial intelligence to improve the efficiency
of water treatment, detect leaks, and perform remote monitoring and testing. We expect to
see greater investment in developing/deploying large-scale desalination systems. There needs
to be greater acceptance of water reuse, along with the advanced filtration systems needed
There is no silver bullet to insure water quality and safety. Look for efforts on improving farming practices and
solution. We expect to see upgrading aging water infrastructure. There also needs to be renewed efforts at conservation
increased investment in and demand-based pricing of water. We expect to see more investment in water-friendly
smart/digital systems and products and services emerge, addressing their conservation advantages. There will likely be
in developing/deploying more emphasis on decentralized solutions like point-of-use filtration rather than relying on
large-scale desalination large-scale, aging municipal systems. We also expect to see more focus in the U.S. at raising
systems. water tariffs to more closely approximate the true cost of water treatment. Notably, the U.S.
still pays on average nearly four times less for municipal water than some European countries
We expect more investment such as Denmark, Switzerland, and Germany. The reality is that water remains chronically
in water-friendly products underpriced.
and services and more focus
in the U.S. at raising water Development of smart water systems could stem the tide
tariffs to more closely Smart water networks use connected devices/sensors, the Internet of Things, and information
approximate the true cost technology to help municipalities improve their monitoring and diagnostics capacities,
of water treatment. optimize investment dollars, ensure proper stewardship of watersheds and infrastructure, and
serve their communities more effectively. Smart water networks represent one of the biggest
Finally, we think AI will be growth opportunity within the global water sector to help address water scarcity.
used to improve the
efficiency of water treating, Exhibit 92 - Xylem’s smart water solutions for smart cities
leak detection, and remote
monitoring and testing.
Source: Xylem Company reports

Energy & Utilities: Renewable natural gas

In the Great Balancing act, innovative energy solutions will be required and one that holds
major promise is Renewable natural gas (or “RNG”). RNG production remains a small part
(<1%) of the current U.S. natural gas supply mix, but we expect it to become more meaningful
over time. The biggest hurdle is cost, with economics on RNG right now primarily supported
by government incentives that place most RNG into the transport fuel market (natural gas
vehicles). However, as broader ESG motivations and GHG emission-reduction goals expand,
we have seen increasing willingness from gas infrastructure companies, oil majors, gas utilities
and socially-conscious end-use companies to support RNG production amid the higher costs
(through voluntary programs at a higher fee).
As broader ESG motivations
RNG growth potential
and GHG emission-
We view RNG’s potential growth story as a “demand pull” development. Consumer demand
reduction goals expand, we
and political will appear essential to grow the necessary credit and incentive structure that
have seen increasing
would make RNG more competitive with conventional natural gas. RNG’s plug and play nature
willingness from gas
make it an ideal, and we believe RNG could grow to account for ~7–11% of natural gas supply
infrastructure companies,
by 2040, consistent with most industry analyses. The addressable market is technically
oil majors, gas utilities and
whatever total natural gas demand is; the market for RNG should be driven more by consumer
socially-conscious end-use
tastes for cleaner fuels. Supply of natural gas for transport could easily be met by growing RNG
companies to support RNG
supply, whereas RNG into the pipeline grid would help reduce emissions where “electrify
production.
everything” is not well-suited 100% of the time.
RNG production remains a
small part (<1%) of the
RNG project economics
current U.S. natural gas We previously provided a broad overview on RNG in a note titled Renewable Natural Gas –
supply mix, but we expect it Where the Gas is Green and Grids are Pretty. In that note, we provide basics on the RNG
to become more meaningful production process and project economics. To briefly summarize, RNG (also known as
over time. “biomethane”) is pipeline-quality gas produced from natural waste. Current production is
primarily via anaerobic digestion from landfills, dairy farms (manure), and wastewater
treatment facilities. When used as a transport fuel, RNG qualifies for incentives under the
federal Renewable Fuel Standard (RFS) and state-level Low Carbon Fuel Standard (LCFS)
programs (California’s LCFS program is most relevant, but other states have followed, or might
soon). We estimate project-level IRRs of ~20–40% depending on process and incentives.
Government incentive structures support RNG growth

We highlight the LCFS program specifically, because we view this dynamic as emblematic of
one state’s goal to reduce emission profiles. We think the LCFS program is highly supportive
for RNG growth over the next decade. The LCFS works by assigning carbon intensity (“CI”)
scores to various fuels, which are then compared against a declining CI target for the entire
fuel pool each year. The sale of fuels below the benchmark (like RNG) generates credits, while
the sale of fuels above (like petroleum gasoline and diesel) generate deficits. More carbon-
efficient fuels generate more credits. Sellers and producers of petroleum products ultimately
need to purchase LCFS credits from producers of renewable fuels in order to satisfy their
regulatory obligations, which creates a market-based pricing system for carbon.
Fuel attractiveness boils down to production cost, supply and demand, and the credits
generated for type of fuel. With credit generation determined by the carbon intensity score,
lower CI fuels are more attractive.

Exhibit 93 - Carbon intensity by fuel type – 2020
In this chart, each line

represents a particular fuel
type and each “marker”
represents a specific project
that is developing that fuel.
“Bio-CNG” line in yellow

equates to RNG, with the
markers equating to various
landfill, dairy, wastewater,
etc. projects.
Landfill gas typically has a

CI score sub 50, which
means its carbon intensity is
>50% lower than diesel.
Source: CARB
Voluntary programs
Growing RNG demand outside the incentives is a focus. RNG sold to gas utilities for things such
as building heating or residential use does not receive the same government incentives;
therefore, the gas utility company would need to pay up for the RNG and then pass on the
extra costs to its customers to earn a profit. This is already happening, and early indications
are encouraging that the support from gas utilities can continue. Further, several larger public
companies have announced intentions to pay this “green tariff.”
Renewable natural gas should lead to improvement in key ESG metrics for sectors
such as Midstream Energy
The Sustainability Accounting Standards Board (SASB) has identified three key environmental
issues that midstream should focus on. These are greenhouse gas emissions, air quality, and
We think the incorporation ecological impacts. We think the incorporation of renewable natural gas projects to a
of renewable natural gas midstream company’s portfolio should improve the standing of midstream in each SASB
projects to a midstream environmental category. We see potential runway for renewable natural gas, which should
company’s portfolio should benefit midstream businesses with more natural gas exposure. With more RNG projects taking
improve the standing of place, there will be a need for infrastructure to transport natural gas from farms and landfills
midstream in each SASB to end users. Investments into these projects should help generate business longer term and
environmental category. make midstream businesses more resistant to the many risks of oil and gas.
RNG is one of several key sources of renewable energy that will help minimize the
harmful effects on the environment.
According to the California Air Resources Board (CARB), RNG sourced from landfills can provide
a 125% reduction in greenhouse gas emissions, and RNG sourced from dairy manure can result
in a 400% reduction in greenhouse gas. Methane is also a problem for the environment as
methane is 25–85x more potent in the atmosphere than carbon dioxide. By investing in RNG
initiatives, digesters are able to capture methane that would otherwise be emitted into the

atmosphere. RNG initiatives are key to helping the environment, which is why companies and
organizations focused on ESG are making investments into these kinds of initiatives.

Waste: There’s a new fuel in town

Building upon our earlier Renewable Natural gas discussion, waste fuel also holds future
promise in the global sustainability effort of The Great Balancing Act. “Waste fuel” is
commonly described as the second-derivative fuel byproducts created by the treatment of
waste (and the gas generated by that waste) that is disposed of at landfills. Right now, the
primary source of fuel from generated waste comes from landfill gas, which is most commonly
converted into renewable natural gas (RNG) – as discussed in the preceding section, a fuel
source that can be used for a variety of applications including consumer use, Compressed
Natural Gas (CNG) for transportation, electricity, or combined with other proven technology
to produce green hydrogen. The landfill gas is extracted through an elaborate series of wells
and pipes and then routed to the RNG facility where CO2, nitrogen and other
We believe the multitude of
impurities/contaminants are removed. In addition to RNG, other fuels that can be derived
known and emerging
from the treatment of waste (both organic and inorganic) include biodiesel and hydrogen-
beneficial use cases of
based fuels. Looking ahead, we envision a world where landfills become increasingly important
waste fuel will serve to
increase the prevalence and sources for alternative energy as companies invest further into waste/feedstock conversion.
investment into
Multiple beneficial use cases for waste fuel
technologies and
For the waste majors, perhaps the most obvious near-term use case is to have the landfill gas
infrastructure that aid in
converted to RNG to fuel waste collection vehicles, creating a closed-loop feedback system.
the conversion of waste to
Right now the percentage of landfill gas projects/facilities that are currently able to do this is
fuel.
relatively low, however we envision a future where an increasing portion of the waste fleet is
fueled via RNG captured at their existing facilities – thereby creating both meaningful
environmental and financial (fuel cost savings) benefits. Further, we believe the use of RNG
also incentivizes improved management of existing waste streams, which we see leading to
potential long-term water and air quality benefits beyond the production of RNG. Overall, we
believe the multitude of known and emerging beneficial use cases will serve to increase the
prevalence and investment into technologies and infrastructure that aid in the conversion of
waste to fuel.
What role can waste majors play in the energy transition?

In our view, the waste majors are at the center of the evolving energy transition and have a
crucial role to play going forward. Given that the U.S. EPA recognizes RNG as a renewable
energy resource and one that is used beneficially as a fossil fuel alternative, we believe there
is a significant opportunity for the majors to capitalize on robust demand from utility
In our view, capturing companies, governments, and other renewable energy providers and increase the rate at
landfill gas and converting which they convert waste and landfill gas into RNG and other renewable energy sources. In
it into RNG creates a more our view, capturing landfill gas and converting it into RNG creates a more sustainable, circular
sustainable, circular economy while also helping to further accelerate the shift away from fossil fuels.
economy while also helping
to further accelerate the Future evolution of waste-to-fuel conversion within the waste industry
shift away from fossil fuels. Landfills provide some of the lowest cost, most predictable and longest-term feedstock of any
renewable fuel. Additionally, we would highlight that landfills, wastewater treatment plants,
and dairy & food digesters represent critical infrastructure and are often viewed as perpetual
feedstock sources of RNG given the long lifespan of these assets. Thus, there is plenty of
runway for landfill gas-conversion technologies and processes to continue to evolve. For
example, landfill gas can be used to create green hydrogen through steam methane reform
(SMR), a process where the technology has already been proven via real-world application,
and costs are expected to be below the targets of other zero-carbon hydrogen producers. We
note that the waste sector has already begun to explore green hydrogen initiatives, with one
of the majors recently entering into a partnership with a small renewable energy company to
convert organic waste to produce green hydrogen at one of their landfills, and we would

expect the other majors to eventually follow suit as green hydrogen grows in prominence as a
credible resource.

Materials: Substrate wars

Perception
It is our belief that the aluminum can and glass packaging have the highest perceived
sustainability perception by the general public, while Styrofoam and PET (plastic) have the
lowest. However, it is worth taking a deeper look at the total energy consumption for each
packaging substrate (including production, freight, reusability recycling energy consumption
etc.) to determine which packaging substrate truly has the lowest carbon footprint and is in
fact the most sustainable packaging solution. Plastics is typically perceived as having the most
negative environmental impact, although it costs less energy to make plastics vs metals and
plastic does offer hygiene and infection protection benefits. On the other hand, glass
packaging has a high sustainable perception, which it deserves as glass is made from natural
earth raw materials and is infinitely recyclable. That said, glass is heavy and therefore has high
freight and energy cost associated with transportation. Finally, while paper is perceived as a
tree chopping substrate, most paper packaging comes from recycled paper and/or tree farms
It is not clear which that are designed to be net neutral to total trees in the ground.
packaging substrate has the
lowest carbon footprint due Carbon footprint
to factors such as We examine the total carbon footprint of packaging substrates, which not only include the
reusability, recycling rates circularity of the specific substrates themselves but the energy and freight cost associated with
(which varies creating the substrate. For example, aluminum cans are “infinitely” recyclable and thus over
geographically) and time the aluminum can has a relatively low carbon footprint, assuming the aluminum is
freight/logistics cost. recycled and reused (~75% of all aluminum ever created is still in use today). Secondary
aluminum production, which involves recycling aluminum scrap for new products such as
food/beverage cans and automotive casting is significantly less energy intensive. Therefore,
we would see recycled aluminum and aluminum as a packaging substrate as a low-carbon
footprint packaging material that is highly dependent on recycling rates.
Exhibit 94 - Aluminum energy consumption rates
Source: U.S. Energy Information Administration
The total energy required to produce 33 billion liters of bottled water is equivalent to 32–54
million barrels of oil (although not all the energy used comes from oil). Energy to produce
bottled water accounts for about one-third of one percent of total U.S. energy consumption.

Styrofoam containers have the lowest production carbon footprint when looking at the
environmental impacts of disposable takeaway food containers (~50% lower than aluminum
cans and ~3x lower than plastic bottles), according to the University of Manchester. However,
Styrofoam cannot be considered sustainable since it is not reusable and most of the Styrofoam
containers end up in landfills.
Exhibit 95 - Takeaway food containers carbon footprint
Source: Journal of Cleaner Production, LCA – Life Cycle Assessment
In total, it is not clear which packaging substrate has the lowest carbon footprint due to factors
such as reusability, recycling rates (which varies geographically) and freight/logistics cost. It is
our opinion that the aluminum can, which admittedly has a high production carbon footprint,
is the most sustainable packaging substrate if, and only if, the aluminum is recycled and
reused.
Pollution and circularity

It is our opinion that the Containers and packaging make up the majority of municipal solid waste (MSW) amounting to
aluminum can, which ~82 million tons of generation or ~28% of total generation, according to the EPA.
admittedly has a high
production carbon Cost
footprint, is the most We believe the cost associated with creating and using virgin plastic is so far below the cost of
sustainable packaging using recycled plastic (due to lack of PET recycling technology and locally PET recycling plants)
substrate if, and only if, the is one of the main drivers that forces products (such as bottled water) to opt for virgin plastic
aluminum is recycled and as opposed to recycled plastic. With that said, there is an industry wide R&D push to come up
reused. with sustainable and cheap recyclable plastic that can be used for products prefer plastic
packaging due to their seal-ability and infection prevention characteristics, which we believe
are superior to other substrates.
Recycling rates
Aluminum has the highest recycling rates (compared to PET and glass) and the highest recycled
content per unit (recycled content per substrate for aluminum cans is 73%, glass 23% and PET
5.6%). In addition, aluminum’s lower weight and stackable characteristics allows for easy
transportation. Finally, aluminum cans are recycled over and over again creating a true “closed
loop” recycling process. Unlike glass and PET which are typically “down-cycled” into other
products such as carpet fibers or landfill liner.

Exhibit 96 - Recycling rates by substrate
Consumer Recycling Rates of Average Recycled Content of

Beverage Containers Beverage Containers
Aluminum
Aluminum 46.1% Aluminum
Aluminum 73%
PlasticPlastic
(PET)(PET) 20.7% Plastic (PET)
Plastic (PET) 6%
Glass
Glass
39.6% Glass
Glass 23%
Value Per Ton of Recyclable Material
Aluminum Aluminum
$1,2010
Plastic (PET)
Plastic (PET)
$237
Glass Glass
-($21)
Source: The Aluminum Association
Finally, aluminum cans help make municipal recycling programs possible. Many of these
programs rely on re-selling recycled material and the high value of aluminum in the recycling
stream effectively subsidizes the recycling of less valuable materials in the bin. The Aluminum
Association report finds that aluminum can scrap is worth $1,210 per ton on average versus
$237 per ton for plastic (PET) and -$21 per ton for glass. The data reflects an average price for
recyclable materials from February 2018 – February 2020. The implications are clear – without
aluminum, very few curbside pickup programs would be financially viable.

Marine sector: Shipping sector dominated by one topic – the path to net zero
While supply chain restraints get all the headlines of late, what has been less-well covered is
the great challenge that the global merchant shipping sector faces in the coming 30 years:
Managing the ambitious decarbonization targets set and enforced by the IMO regulator.
Tight environmental rules for new ships

Shipping accounts for c.3% of global CO2 emissions. That may not sound like much, but
merchant ships run on heavy-fuel-oils, which have a very high pollutant content (SOx, NOx,
etc.) and regulation on emission-reduction had been lax compared to other industries. For
example, until 2020, merchant ships were not required to use SOx filters (scrubbers) to clean
their exhaust gases. Times are changing as the regulator, the International Maritime
Organization (IMO), set out ambitious emission targets for the global merchant fleet, including
a 50% GHG reduction by 2050. It is also increasingly clamping down on environmental
compliance of the c. 100,000 merchant vessels globally. Already by 2025, new ships must have
a 20% improved efficiency (vs. 2013 levels and measured as CO2 per ton-mile). With a broad
regulatory framework (EEXI, CII and CEMP) the IMO is no longer nudging, but forcing the global
A 50% GHG reduction by merchant shipping sector towards cleaner technologies.
2050 for an entire fleet is an
ambitious target; to achieve Technologies needed to comply with a 50% GHG reduction target
these targets, shipyards will A 50% GHG reduction by 2050 for an entire fleet is an ambitious target, to say the least,
need to churn out highly especially if one considers that the useful lifetime of a merchant ship is around 30 years. To
efficient vessels already in achieve a 50% GHG reduction by 2050, shipyards will need to churn out highly efficient vessels
the coming five years and already in the coming five years and replace some 4% of the global fleet per year going
replace some 4% of the forward. We expect the pace of fleet replacement to accelerate. For system suppliers this
global fleet per year going creates a very attractive market environment as each stage of new legislation creates a need
forward. We expect the for more tech content on new vessels, but also a need for retrofits on for the existing fleet (as
pace of fleet replacement to seen with bilge water regulation in 2013, NOx emission regulation in 2016, and sulfur emission
accelerate. regulation in 2020).
Slow-steaming: the most promising technologies to reduce GHG in shipping

There is no one path of achieving an energy-efficient vessel. Instead, the shift requires a whole
basket of green technologies. The market currently places the biggest R&D on vessel
propulsion (fuel-electric hybrid propulsion, wind propulsion) and fuel mix (from heavy fuel oil
to LNG, ammonia, H2, battery). But there are other engineering areas that can contribute to
reduced emission, such as on-board cleaning systems, carbon capture systems and navigation
(just-in-time arrival, wave-adjusted routing, autonomous).

Exhibit 97 - Technologies pursued to reduce CO2 and other emissions by vessels
Routing,
Vessel design Propulsion Fuel After treatment
Logistics
Technology
• Speed reduction • Hull coating • Engine • LNG/LPG • Waste water

• Optimized vessel • Hull shape optimization • Biofuel recovery
utilization optimization • Engine de-rating • H2 • Exhaust gas
• Larger vessels • Air lubrication • Hybridization • H2-based fuels treatment and
• Navigation (wave, (battery, multi-fuel) (ammonia, capture
current and wind methanol, eDiesel) • Carbon capture
adjusted) • Wind and storage
5-15%
CO2/ toxic emission
reduction potential
>20% 5-20%
>30%
20-80%
Source: RBC Capital Markets, Det Norske Veritas
Below we give brief overview of promising emission-reduction technologies:
Slow-Steaming: Perhaps the easiest way to reduce fuel consumption in shipping – and the
one with a biggest impact – is the adoption of slow-steaming, whereby a vessel reduces
its travel speed by up to 50%, saving up to 30% on fuel for the same route. The biggest
benefit is achieved for the “first 3 knots,” (i.e., reduction from – say -24kt to 21kt, which
saves c.25% of fuel per mile). Extreme slow-steaming has technology challenges (clogging
There is no one path of up of turbochargers, poor combustion efficiency) but engine makers are working on
achieving an energy- solutions.
efficient vessel. Instead, the
Main obstacles: Slow-steaming is an easy win for the International Maritime
shift requires a whole
Organization’s GHG reduction targets, but it creates a need for a far larger global shipping
basket of green
fleet. Slowing all ships by 30% requires a 42% larger shipping fleet.
technologies.
New combustion engine technology: The conventional 2-stroke engines run on highly
polluting HFO fuel and the trend is going towards cleaner MGO/LNG powered ships. In the
transition period (20–30 years) 2-stroke engines can be designed to seamlessly switch
between HFO, MGO and LNG (so-called dual-fuel engines). Dual-Fuel is already standard
in the industry today. In the meantime, leading engine makers (VW’s MAN ES, WinGD,
Wartsila) also develop combustion engines that can run on ammonia (free of CO2
emissions), methanol (CO2-neutral if derived from renewables, such as C-captured H2) and
hydrogen.
Main obstacles: Test runs for ammonia and H2 engines look promising. The main
challenge is the fueling infrastructure at ports, the storage of the fuel on ships (H2 has a
very low energy density per volume) and safety concerns (ammonia is explosive and
corrosive, but ignites poorly).

Exhibit 98 - Dual-Fuel engines enable vessels to switch from HFO to LNG and future eFuels
Source: MAN ES 2-stroke engine
New propulsions: Wind-assisted propulsion has the potential of saving 5–10% of fuel for
merchant vessels and we observe a renewed interest in the technology (Alfa Laval/
Wallenius JV). Technologies include rotor sails (a technology developed in the 1920s),
retractable stiff sails (Alfa Laval/ Wallenius) and flexible kite sails (SkySail).
Main obstacles: Cheap fuel prices in the past and the owner/charter structure in the
shipping market have so far prevented any meaningful commercial use.
Exhibit 99 - Every little bit helps: wind propulsion and air lubrication are amongst the technologies pursued to reduce GHG
emission of the shipping sector
Retractable sails tested for car carriers Air lubrication for ship hulls can reduce fuel consumption by 4%
Source: Wallenius, Wartsila/ Silverstream, RBC Capital Markets
Routing software: Ships increasingly use navigation software that calculates the safest
and most efficient route, utilizing the latest navigational charts (weather, current, wind).
The route is continuously re-calibrated and the vessels direction and engine speed
automatically adjusted to minimize fuel consumption, while allowing the ship to arrive
just-in-time for its port slot.

Main obstacles: Digitalization of vessel fleets.
Electric propulsion (fuel cell, battery): Batteries and fuel cells do have a market in
shipping, but will likely remain a solution for near-shore vessels (tugboats, port service
vessels, small ferries) that can frequently refuel and don’t run 24/7. Both MAN Energy
Solutions and Wartsila offer hybrid ship propulsion (e.g., LNG engine + 2MWh battery
pack), while TECO 2030 recently announced a fuel-cell deal for over 120 small cargo
vessels (c. 1.2MW power output each).
Main obstacles: The use of battery power as main propulsion for merchant ships will likely
not become a commercially attractive solution before 2050, at least not for ocean-going
vessels above 10,000t. Beside the issues of battery weight and cost/MWh, large merchant
vessels also require a constant mechanical engine output of 20–30MW over a period of 3-
four weeks. To put this in context: A large ship would consume the electricity stored in
the world’s largest on-land battery storage system (the 1,200 MWh BESS Project, Moss
Landing, California) within two days.
Exhibit 100 - Alternative fuels: Shipping put great hopes in H2-based fuels, including fuel cell and ammonia (via carbon capture)
TECO 2030 fuel cell for river barges Wartsila engine test with ammonia fuel
Source: TECO 2030, Wartsila
Ship hull lubrication: Air lubrication of ship hulls reduces the drag of the vessel in the
water. Around 4–5% fuel saving can be achieved (source: Silverstream) and eight such
systems have just been ordered for newly built LNG carriers in South Korea.
Main obstacles: Need for new hull designs.
Carbon-capture: On-board carbon capture is still in an early phase of development. We

know that Mitsubishi Shipbuilding is currently testing a system on board a coal carrier.
The project’s aim is to “verify the efficacy of capturing and storing CO2 from a vessel’s gas
emissions” and to test the operability and safety of CO2 capture facilities at sea. TECO
2030 and Chart Industries also jointly developing a CO2 capture system.
Main obstacles: High technological challenges, including high energy need to capture CO2,
high weight and volume of captured carbon, high installation costs.
Onboard capex needs to triple by 2030

Putting a number on the onboard capex needs by 2050 is not easy. We have a good idea on
the direction of regulation and pace of vessel replacement. We also know which technologies
are currently being developed. We estimate that a modern commercial vessel has a green

technology content of around $5–6M. This is an average over all vessel classes above 40,000t
weight. We find the highest content in cruise ships ($30M) and the lowest in small bulk carriers
at (<$2M). We expect the content to grow to an average $16M per vessel by 2050 (c.3.5%
CAGR) with the main drivers being engine technology, LNG treatment and carbon capture
(from 2040).
Exhibit 101 - Market for green-tech for the commercial shipping market to grow by +6% CAGR 2020–2050
60 18.0
USDbn green shipping market
USDm green tech per vessel

16.0 16.0 carbon capture
50 15.2 heat recovery
14.7
14.0 waste water management
12.5 Battery/FC/wind propulsion
40 12.0
10.9 ammonia/CH4 storage
10.0 BOG compr./ cooling
30 fuel conditioning
7.9 8.0
flow mgt. software
20 6.0 LNG cooling
5.7
LNG treatment
4.0 BWM systems
10
2.0 exhaust gas cleaning
flexible engine
0 0.0 Green tech per vessel (RHS)
2020 2025E 2030E 2035E 2040E 2045E 2050E
Source: RBC Capital Markets, Det Norske Veritas, Clarckson, Wartsila
The replacement of vessels currently stands at around 1,900 ships per year. Assuming a 5–6%
pa increase in global trade and 3% pa efficiency gain (trend towards larger vessels) and a new-
built/scrap ratio of 1.5 per year, the global fleet will need c.3,600 new vessels annually by 2050
(c.2% output growth pa). This puts the overall “green tech” market for merchant ships at
around $58B by 2050 from $11B today (+6% CAGR). The number does not include the effect
from slow-steaming. If included, the required fleet size would need to be drastically larger: We
calculate that each 5% fleet increase would require 13,000 additional vessels to be built by
2050 (incl. some scrapping), adding c.50bps to the 2020–2050 CAGR of the green tech market.

Capital Markets: The green financing solution

Large investments will be needed to finance the energy transition and drive forward The Great
Balancing Act innovations we have discussed. Various sources put the requirement at different
levels. The EU commission (July 2021) estimates that Europe alone will need to invest EUR350B
in additional investments per year to meet its 2030 emission reduction target in energy systems
alongside EUR130B needed for other environmental goals.
Governments and public sector entities have played a large role in the financing of investments
towards a more sustainable economy but the contribution of banks and other financial
institutions has been increasing. As part of its EUR800B recovery fund, the EU plans to issue
EUR250B of green bonds making it the largest issuer of green debt. The proceeds will be passed
on to member states to spend on energy efficiency, transport and nature protection.
Europe has been faster in addressing climate concerns. For example, green bond issuance (based
on Dealogic) in Europe was $212B in the first 9 months of 2021 (9% of total DCM) compared to
$64B in North America (2% of total).
Regulators and financial market supervisors have been working on standards that assure funds
are used for the targeted purpose but there is still an area of uncertainty leading to general
concerns of “greenwashing.”
It is not possible to generalize that green bond issuance comes at lower spreads than other
comparable bonds given the many factors contributing to the pricing (e.g. size). However, supply
and demand dynamics have in most cases led to tighter spreads on green bonds than ‘brown’
The transition to bonds. While the pricing differential on the debut green bond recently issued by the EU was only
sustainability will impact 2bp, the difference could be higher for other issuers and debt instruments compared to other
the profitability of banks instruments issued by the same entity.
and other financial
institutions. Stranded On the bank lending side, the fact that banks have large liquidity buffers in combination with
assets, higher capital upcoming regulatory changes (e.g., Green asset ratio in Europe from 2022) has increased the
requirements and higher supply of green loans. A study by the Sustainable Finance Program of the Smith’s School of
loan losses are potential Enterprise and the Environment, University of Oxford (April 2021), for example put the pricing
risks to bank profitability differential between fossil fuel financing via syndicated loans and loans related to renewables at
longer term. 40bp. Banks have argued that on a net basis margins on green and brown financing are similar.
On the other hand, those As supply of green financing is likely to increase, the scarcity discount might erode. However,
banks that have positioned there are a number of reasons why financing of green assets might continue to come at lower
themselves well to support spreads than brown financing. Bank regulation has become fiercer with tight timelines especially
this transition, should gain in Europe (e.g. stress tests in 2021/2022) which could have profitability implications for the banks
market share and attract a that require an offset with an adjustment in their funding costs. The ECB announced in July 2021
premium in share prices for that it will adjust its corporate bond-buying program to incorporate climate change risk, which is
their reputation. likely to reduce the cost of issuing green bonds compared to other bonds.
The transition to sustainability will impact the profitability of banks and other financial
institutions. Stranded assets, higher capital requirements and higher loan losses are potential
risks to bank profitability longer term. On the other hand, those banks that have positioned
themselves well to support this transition, should gain market share (e.g. in green bond
issuance, financing of renewables, sustainable investments) and attract a premium in share
prices for their reputation.
The challenge is to balance long-term climate goals with short-term pressures arising from
factors that touch on other sustainability objectives. For example, during 2020 a number of
banks expanded their fossil fuel financing to assure job security in affected sectors.
Insurance: The first line of defense in climate change

Despite our global sustainability effort in The Great Balancing Act, there’s no doubt the adverse
impacts of climate change will continue to occur, and insurance is evolving to help accordingly.
P&C insurance companies have been at the point of the spear of climate change for several
decades bearing direct financial responsibility for the impact of severe weather events, an
Insurance companies will increase in natural disasters and related human made catastrophes. If you construct a list of
likely be at the vanguard of the greatest environmental challenges over the next 10 years and beyond, insurance
both trying to identify and companies will likely be at the vanguard of both trying to identify and quantify the risks as well
quantify the risks as well as as seeking solutions to lessen the impact.
seeking solutions to lessen
the impact.  Property and Casualty Insurers face rising catastrophe frequency and severity as climate
and weather patterns change over time.
 Life mortality and morbidity could be impacted by increasingly contagious and deadly
diseases, as well as potential increases in exposure-related casualties.
 The timeline for change extends beyond 2025, but expectations will narrow and defense
strategies will be more clear in five years. Technology plays a key role in loss mitigation as
society adapts.
Exhibit 102 - Environmental challenges over the next 10 years
Source: World Economic Forum
While scientists and politicians seek long-term solutions – insurers will use advanced analytics,
risk management and capital market tools, evolving building codes and insurance terms and
conditions as their shield against climate and the impacts it can and will have on property.
For life insurance the impact of climate is less direct but potentially no less severe. Climate
challenges allow for new variations of bacteria and diseases to propagate, and climate
volatility can increase the frequency of high mortality events. Life expectancies will change as
the cities that house us become less suitable for the elderly and young, which also impacts
mortality and bottom-line results at life insurers.
If insurance is the financial tool that allows people and companies to manage uncertainty,
there are few uncertainties greater than those posed by climate change. At its heart climate
change is a long-term issue, and while scientific consensus on particular topics continues to

evolve the likelihood that insurance companies will be asked to bear the uncertainties that
underlie climate topics isn’t likely to diminish anytime soon.
Climate change and P&C insurance

Property and casualty Our property and casualty insurance coverage faces the most clear impacts from climate
insurance companies face change with the most glaring impact being the changing nature, frequency and strength of
the most clear impacts from both normal and catastrophic weather events. In simplest terms, climate change makes
climate change with the weather and catastrophic events more frequent, more severe and more unpredictable, which
most glaring impact being proves a distinct challenge in risk management and modelling.
the changing nature,
frequency and strength of After record 2017 and 2018 catastrophe loss years, 2019 was more mild before a resurgent
both normal and 2020. In the last five years, we have seen several of the largest wildfire burn years in the U.S.
catastrophic weather (2017 and then again in 2018), substantial flooding of the agricultural regions of the U.S. in
events. 2019, the record-breaking 2020 hurricane season (by count, not losses) and extreme winter
storms in Texas in 2021. All have been linked to climate change. While the problem of changing
climate is long term in nature, some of the effects are being felt today and by 2025, it is likely
that impacts will remain severe despite ever-greater mitigation efforts. Said differently,
whatever the impact is right now, it probably gets worse before it gets better.
Exhibit 103 - 2020 Global weather events
Source: National Oceanic and Atmospheric Administration

P&C insurers, specifically property insurers have always faced the challenge of pricing and
managing risks of large loss events. Reinsurance has played a part in disseminating risk of 1 in
100 or 1 in 500 type events across the industry, preventing catastrophic weather events from
becoming devastating financial events for the sector. As time progresses and risks become
increasingly uncertain and costly, the role of reinsurance, Lloyd’s and newer risk-sharing
products like catastrophe bonds will expand and become increasingly important as insurers
with exposures in geographies more acutely impacted will attempt to shed risk.
Exhibit 104 - Cat Bond issuance and capacity through 3Q21 ($M)
54000 Issued $m Outstanding $m
52000
50000
48000
46000
44000
42000
40000
included in the data in this report please visit ww w.artemis.bm/deal_directory/

If you want to see full details of every catastrophe bond and I LS transaction
38000
36000
34000
32000
30000
28000
26000
24000
22000
20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Source: Willis Re Securities, Artemis
The major takeaway for climate change’s impact on P&C insurers is that increasingly frequent
and severe catastrophic storms, flooding, fires and climate-driven events will increase the risk
More than two-thirds of
of underwriting in many geographies. It is already the case that more than two-thirds of
economic losses,
economic losses, particularly in developing countries are uninsured. This percentage only rises
particularly in developing
if losses become more severe.
countries, are already
uninsured. This percentage The simple solution is risk sharing and pricing increases. But rate increases are inherently
only rises if losses become unpopular and regulators and politicians will push back against them, which counters the
more severe. price-signal that insurance provides in risk management.

For example, in 2017 U.S. legislators passed a bill to reform the National Flood Insurance
Program (NFIP) and raise rates to “actuarially sound levels” over 10 years. The rate increases
were ultimately cancelled as they were perceived as too costly to homeowners (i.e., voters).
The upshot being that the NFIP continues to lose money and new construction continues to
take place in climate vulnerable areas because that construction is effectively subsidized by
insurance premiums not adequately priced for present risk, let alone future risk.
Similarly, state regulators can act to limit pricing increases, and even attempt to force
underwriting in some situations. California has done the latter in recent months, outright
barring the cancellation or non-renewal of residential property insurance (homeowners’
policies) for 22 counties that are in high-risk wildfire areas. The order covers 325,000
policyholders and lasts one year. While California, or other states, cannot compel insurers to
cover someone forever, the attempts to limit exiting of high-risk areas is certainly an
interesting approach.
We think it is clear that in the next 5, 10, 20 and 100 years individuals and governments will
have to become more conscious of the environmental risks in areas for new development, as
insurers are clearly turning their attention to the increasing risks of many regions.
Exhibit 105 - Cumulative insured catastrophe losses since 1970 ($B, 2020)
Source: SwissRe Institute
Beyond property risk, climate risks for insurers could feasibly extend to liability losses as well.
Just as cigarette manufacturers were sued for covering up the danger of their products,
activists have filed suits against oil companies and power generators in recent years. Should
the suits prove successful, D&O and general liability underwriters would ultimately be on the
The risk to life insurance is hook. We think assessing damages would be difficult and take years to litigate, but the risk is
not zero. Climate change out there.
could have drastic impacts
on life expectancy through
the further proliferation of
Climate change and life insurance
infectious disease, While P&C insurance faces the most glaring impacts from climate change, the risk to life
increased frequency of insurance is not zero. Climate change could have drastic impacts on life expectancy through
exposure to extreme the further proliferation of infectious disease, which could impact morbidity and mortality
weather events, and assumptions for insurers. Changes to society from relocation of individuals into cities could
lifestyle changes from also impact life expectancy. Finally, climate itself will also take a toll as death from heat
relocating into cities. exposure and cold exposures become more frequent as weather becomes increasingly
irregular and life-threatening events become more frequent.
On the final point, a study published in the journal Lancet Planetary Health looked at 20 years
of global deaths attributable to heat- and cold-related deaths. The study concluded that heat-
and cold-related deaths accounted for 9.4% of deaths annually in the last 20 years, and
produced excess (above normal) mortality of 74 deaths per 100,000 people per year. Heat-
related deaths are on the rise, but cold related deaths make up 94% of exposure-related
mortality, according to a separate study.
Each year, nearly 100,000 people die from cold in the U.S., compared to about 2,500 from heat
exposure. The phrase “global warming” might lead some to believe that warmer temperatures
could increase life expectancy by reducing cold exposure. We note that most of these deaths
occur during extreme weather events, such as the early 2021 Texas winter storms. Climate
change is expected to result in warmer average temperatures, but is also expected to increase
the frequency of tail events (both hot and cold), and could result in more exposure-related
deaths, which in turn could result in claims to life insurers.
Beyond exposure to the elements, the clearest example of how climate change can impact life
Climate change has the insurers has played out in the last year. While COVID-19 did not arise from a climate anomaly,
potential to increase the it shows the dangers poised by infectious diseases. One of the concerns about climate change
transmission of mosquito- is the way it can increase transmission of mosquito-borne disease, amongst others.
borne disease (among
others). The projected range of Aedes Aegypti, the yellow fever mosquito, is broken out below. The
yellow fever mosquito spreads deadly diseases such as Zika, dengue fever, yellow fever and
others. It has not been as lethal as its cousin, the Anopheles genus mosquitos that spread
malaria (and kill about 400,000 per year in Africa), though all mosquitos could see their ranges
extended in similar manners due to climate change.

Exhibit 106 - Estimated 2019 range (top) vs projected 2050 range (bottom)
Source: Sadie J. Ryan, Colin J. Carlson, Erin A. Mordecai, and Leah R. Johnson via NPR
As the above projection demonstrates, increased temperatures globally increase the viable
lives of mosquitoes and their geographic footprint. Outside of mosquitoes, other disease
carriers are seeing their range increased. A recent study by New Scientist determined that
Lyme disease infections in the U.S. could rise by 92% as a result of increased tick viability due
to higher average temperatures.
The recent COVID-19 outbreak also exposed the fragility of the global economy and how
unprepared nations around the world were for the disease. With extensive credit-exposed
investment portfolios, the response to the pandemic, including economic shutdowns, is as
important if not more important to life insurers as any mortality impact that may arise.
While society has inevitably learned some lessons from COVID-19 there could well be more
lessons to learn to the extent extreme climate conditions create new challenges.
Technology and climate change

Climate change is an inherently slow-moving macro condition. It will not occur overnight and
our understanding of the impending issues will improve over time. This should allow scientists
and engineers to find solutions to mitigate issues as nature takes its course. It will be important
for insurers to remain up to date on the latest scientific consensus, and advocate for the use
of improved modeling, building materials, and risk scenarios in their analysis of underwriting
risks moving forward.

One of the major factors that can decrease potential future losses from hurricanes is building
standards and conscious development. A number of Gulf Coast states have drastically
increased their building standards for new homes in recent years. Florida has been a leader in
improving building code and therefore durability to increasingly common, strong hurricanes.
It will be important for
insurers to remain up to Over a decade ago, the Insurance Institute for Business and Home Safety created a standard
date on the latest scientific for disaster-proof structures called “Fortified Homes.” The homes are built to rigorous
consensus, and advocate standards, and one of the few homes built to the standard was at Mexico Beach in Florida
for the use of improved when Hurricane Michael made landfall as a Category 5 nearby, see below:
modeling, building
materials, and risk Exhibit 107 - A fortified home survived Hurricane Michael (Cat 5) at Mexico Beach
scenarios in their analysis of
underwriting risks moving
forward.
Source: Johnny Milano, NY Times
The home was one of the only structures in the entire town to survive the storm broadly
unscathed. The fortified home was specifically designed to survive all manner of catastrophes,
whether it be wind, flood or other potential threats. It sits 12 feet above the ground and is
anchored 28 feet below the surface. The home was built in 2016 to the highest level of Florida
standards. It is not cheap to build these homes, but we think it will become increasingly
necessary to fortify structures as climates shift.

There have been great Land use is also a tool communities can use to mitigate losses. When one looks at the above
strides in recent years in picture one question is why did this house stand? Another question might be why were there
terms of weather any houses there in the first place that weren’t built to the highest possible standard? Every
forecasting and hurricane community loves tax revenues and oceanfront property provides that, but the trillions of
modeling specifically, which dollars of insured property that is within 25 miles of a coastline is both the most valuable and
can help save lives and the most vulnerable and only building codes can balance that risk.
property as storms
approach. Other technology is useful to help save lives and property as storms approach. There have
been great strides in recent years in terms of weather forecasting and hurricane modeling
specifically. Together, these can lead to earlier evacuations and more time to batten down the
hatches and limit the damage presented by hurricanes.
The National Hurricane Center found that models have essentially improved accuracy by a day
every ten years, meaning that a 5-day forecast today is as accurate as a 4-day forecast in 2010
and a three-day forecast in 2000. This improves our ability to evacuate, prepare and respond
to the increased severity and frequency of storms, which should help mitigate dollar losses.
Exhibit 108 - Hurricane modeling improvements (1990–2017)
Source: National Hurricane Center- Eric Blake
Death counts from hurricanes have fallen precipitously over the last 100+ years. In 1900, a
Category 4 storm wiped Galveston off the map and killed 20% of the population. In 2017,
Puerto Rico declared a state of emergency days before Irma reached the island. The 2010
Climate shifts will pose Russian heat wave, Hurricane Sandy in 2012, and 2013 U.S. cold spell were accurately modeled
massive problems for up to eight days before occurrence. El Niño can now be predicted 3–4 months ahead of its
infrastructure and property, cycle.
but technology (supported
by investment from Climate shifts will pose massive problems for infrastructure and property, but technology is a
Insurers) is a positive tool positive tool that can help limit downside as society adapts. Look for insurers to continue to
that can help limit downside invest in cutting-edge modeling capabilities and loss mitigation efforts as they look to maintain
as society adapts. or improve existing underwriting in catastrophe-prone areas.

Consumer: Luxury and retail resale

The next frontier for luxury brands relates to the resale market in our view, with supportive
demand and supply side-enabling factors nurturing market development as part of the Great
Balancing Act. Individual empowerment, better understanding of circularity concepts and
Internet-enabled connectivity supports the development of secondary markets across personal
product categories. Personal luxury goods has been a laggard in terms of resale market
development, even though its attributes are quite supportive including high price points, high
quality and value retention. The jury is still out whether resale is a net positive or negative for
brand owners, even if it has improved product availability, price transparency and customer
choice.
Personal luxury goods has Within 10 years, resale could constitute 20%+ of luxury demand, which has knock-on
been a laggard in terms of implications for future revenue growth, new customer recruitment and product control.
resale market development, Effectively, the market is being disrupted by secondary marketplaces that trade products outside
even though its attributes of the control of brand owners.
are quite supportive
including high price points, Demand side drivers supporting growth include consumer’s changing perception of luxury goods
high quality and value as an investment as much as a consumable (and price discovery), weight of aspirational
retention. consumers who wish to participate in luxury brands who however are value constrained (price
savings), demand for difficult to obtain products in the primary market (product scarcity), the
growing desire of consumers to recycle and reduce waste, and the catch up of China’s resale
market (which is behind the curve relative to other major luxury markets – 6% resale incidence
vs 30% for U.S., according to China Luxury Research Centre – but catching up fast given changing
perception of second-hand goods).
On the supply side, strong primary market growth in recent years (increasing volume of product
in people’s wardrobes), increasing number of platforms with greater reassurances on
authentication guarantees, high profile M&A/IPO transactions and social shopping and online
communities have contributed to a more dynamic resale marketplace in recent years.
Brand bifurcation is one of the consequences of an expanding resale market with higher levels
of price transparency, as we have seen in the luxury watch industry (which is ahead of the curve
in terms of resale market development). There is a positive feedback loop between the highest-
profile brands which have strongest value retention/price appreciation at the expense of the rest
of the industry which has more normal value retention characteristics.
A well-functioning secondary market is largely complementary to the primary market, as it

enables aspirational and price conscience consumers the opportunity to participate in luxury
consumption, who often progress to purchasing in the primary market further down the line. It
also offers brand owners the opportunity to further embed the relevance of sustainability as an
If value realisation and end goal and product circularity into their business models, given the nature of the products they
recycling of previous are producing (long life, high quality), even if taking an indirect view on resale.
spending are material
drivers of future spend, we What is less clear at this stage is the extent to which resale market share growth will impact
envisage the luxury sector primary market growth, particularly in less developed markets such as China. If value
(particularly soft luxury) realisation and recycling of previous spending are material drivers of future spend, we envisage
may need to adjust to a the luxury sector (particularly soft luxury) may need to adjust to a lower volume growth outlook.
lower volume growth
Luxury brands’ approach to resale so far has been relatively nascent with a clear preference
outlook.
for brand equity over economic interest. We agree with this approach for now, given the
relatively early stage of resale market development. However, if we fast forward 20 years, it is
likely luxury resale will be an established and prominent feature that sits alongside the primary

luxury market. Tension points are presenting, particularly around brand representation,
authentication and counterfeits.
Exhibit 109 - Resale market growth should accelerate to +15% Exhibit 110 - Resale market share is 13% and forecast to reach
CAGR (from +11%) and reach €45bn by 2023E 15% by FY23E and likely 20%+ post FY30E
Secondary Personal Luxury Goods Market size (EURbn, %chg yoy) Secondary market as a % of total Personal Luxury Goods market (% total)
45 15%
+15% CAGR 13% 14%
39 12%
34
+11% CAGR 29 9%
26 8%
22 8% 8%
20 7%
2017 2018 2019 2020 2021E 2022E 2023E

Secondary market for luxury goods (EUR bn) 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E
Secondary luxury as % total market size
Source: Statista, RBC Capital Markets Source: Bain Altagamma, Statista, RBC Capital Markets estimates
In Retail, apparel rental and resale is gaining in importance, as consumers look for greater
circularity in fashion. We expect the majority of growth in second-hand clothing to come from
resale, with popular online platforms helping to drive peer-to-peer selling. According to data
from resale platform ThredUP, the second-hand clothing market is expected to double in size
over the next five years, growing to ~$77B. The majority of this growth is expected to come
We believe that resale and from resale, which is projected to more than triple in size over the next five years, to ~$47B.
rental offers a new path for
retailers to connect with We anticipate similarly strong levels of growth from the clothing rental market, which is
customers and appeal to projected to grow to ~$7B by 2025, according to Statista, up from ~$3.5B in 2020. We have
more ESG-focused also been seeing growth from traditional retailers and department stores moving to introduce
consumers, but that the subscription rental schemes into their stores.
growth of second-hand and
peer-to-peer selling may An opportunity and a threat. We believe that resale and rental offers a new path for retailers
serve to cannibalize to connect with customers and appeal to more ESG-focused consumers. However, we note
traditional retail sales over that the growth of second-hand and peer-to-peer selling may serve to cannibalize traditional
time and could be a threat retail sales over time. Additionally, we note that expansion into these areas may also be a
to retail margins. threat to retail margins. We believe that the consumer mindset has shifted, with second-hand
clothing now more acceptable or, in the case of vintage collections, even preferred. The
convenience offered by peer-to-peer platforms provides a trendy alternative to traditional
retail. We think the global apparel names and the online retailers are leading the way in this
area.

Technology and Industrials: A renaissance in supply chain management

Supply chains have faced unprecedented stresses in 2020 and 2021. The impact started from
the early days of COVID-19 when consumer hoarding and demand spikes lead to localized
stockouts of specific goods like hand sanitizer and toilet paper. Next, freak events like the Ever
Given container ship becoming disabled in the Suez canal applied pressure across multiple
supply chains. More recently broad shortages of semiconductors, backlogs at global ports, and
general overall supply tightness is impacting the supply chains for almost all manufactured
goods.
The “bull whip” effect amplifies the disruptions in 2020/2021. In supply chains, the “bull
whip” effect refers to the cascading and increasing fluctuations in inventory as one moves
further up the supply chain. The result is that even small changes in demand on the retail level
The disruptions in 2020 and can have significant impact on upstream suppliers. Global supply chains operate typically on a
2021 have exposed the risks just-in-time basis, where on-hand inventory is kept to a minimum in order to maximize
of just-in-time inventory inventory turnover and return on assets and invested capital. In order for just-in-time supply
and long global supply chains to operate without stockouts and disruptions to production, they require uninterrupted
chains and have led to a and predictable supply. Prior to 2020 and 2021, the supply environment for the vast majority
renaissance in supply chain of industries was quite stable. However, in 2020 and 2021, the “bull whip” from changes in
management. demand or shortages of specific components is creating havoc on supply chains.
The move to more resilient supply chains. The disruptions in 2020 and 2021 have exposed the
risks of just-in-time inventory and long global supply chains. New technologies help improve
the resiliency of supply chains, where improved visibility to potential disruptions allows
companies to make adjustments before experiencing shortages and help mitigate the “bull
whip” effect. Additionally, companies are able to make better-informed decisions when
making changes to their supply chain, such as knowing the full cost or risks associated with
potential changes. Large global organizations are re-considering their supply chain strategies
and starting to prioritize investments in technologies to provide better insight and the ability
to react to changes in upstream supply and downstream demand. Examples of new
technologies include:
 IoT (Internet of Things) sensors to help provide visibility to the movement of goods and
supplies;
 Artificial intelligence/machine learning (AI/ML) software to help better analyze and
predict changes in supply and demand;
 Next-generation telematics to help optimize the routing of delivery vehicles;
 Messaging and automation software to accelerate the pace of notifications and status
updates
 Cloud-based solutions to provide access to supply chain information anywhere and
anytime; and
 Digitization of new supply chain information the addition of new metrics such as
sustainability (i.e., carbon intensity) and reliability to help organizations optimize supply
chain strategies beyond just lowest cost.
Global supply chain management software is growing 12% CAGR to $31B in 2026. According
to Statista, global supply chain management software spending is forecast to increase at a 12%
CAGR from $15.6B in 2020 to $31B in 2026. Sub-categories in supply chain management
include: supply chain planning, transportation management systems, warehouse management
systems, and manufacturing execution systems. While on-premise deployments represent the
majority of supply chain management spending, the cloud is growing rapidly, particularly given
advantages like higher uptime, scalability, resiliency, and pre-integration into third-party
software.
Exhibit 111 - Statista forecasts global supply chain management software spending to
increase 12% CAGR between 2020 and 2026E
Source: RBC Capital Markets estimates, Statista
Blockchain to help improve supply chain transparency. Global organizations are under
tremendous pressure from governments, consumers, shareholders and other stakeholders to
provide more transparency and information on their supply chains. This includes disclosures
regarding carbon emissions, the source of ingredients and raw materials, welfare conditions
of animals, ages of employees, and usage of conflict minerals. The ability for organizations to
accurately track this information through their entire supply chains is difficult at best with
existing technologies. Most large organizations utilize hundreds or thousands of suppliers,
which use multiple suppliers themselves, making it difficult to track raw materials back to their
origin. Blockchain is emerging as a key technology to help global organizations trace the source
of the materials in their supply chains. Blockchain is a distributed ledger, which allows the
chronological, trusted and auditable documentation of the trail through which a good or
material has progressed through the supply chain. A distributed ledger used globally helps
improve traceability and improve coordination between the various intermediaries in supply
chains (see below for an illustration):

Exhibit 112 - Blockchain helps improve traceability and transparency in global supply chains
Source: Harvard Business Review, V. Gaur. and A. Gaiha, Building a Transparent Supply Chain,” May–June 2020.
See additional details on blockchain in The Individual Revolution

Manufacturing: Gone local – could growth rates double for capital goods
companies?
Initial noises around onshoring post the outbreak of COVID-19 started to quickly fade away as
Asia reopened faster than the West and economic and profitability considerations took
priority. However, the >6x jump in global shipping rates is another reminder that is reigniting
this issue. We see a strong growth outlook for near shoring in labor-intensive manufacturing
that should benefit investment in areas such as Eastern Europe, Turkey, North Africa and
Mexico. We also expect continued growth in automation (an ongoing trend which has already
seen global industrial new robot installations increase at a 13% CAGR from 2010–19), but with
We see a strong growth a shift towards incrementally higher growth in Europe and the U.S. relative to Asia. Global
outlook for near shoring in capital goods companies will be key beneficiaries from this structural tailwind as they act as
labor-intensive the enablers of a realigned global manufacturing footprint. The build-out of the Chinese
manufacturing that should manufacturing footprint was a key factor in European capital goods companies achieving
benefit investment in areas growth rates at more than double the rate they have seen in recent years. A shift to localization
such as Eastern Europe, could have a similar impact on growth rates over the next decade.
Turkey, North Africa and
Mexico. The growth of Chinese manufacturing
Global manufacturing has shifted fundamentally over the last few decades as China and other
emerging markets saw significant growth in their manufacturing sectors and Western
companies focused their growth in these regions while at times downsizing their domestic
footprints. This was driven by a combination of:
Lower costs – China and other markets have offered the opportunity for lower cost
manufacturing. In 2000 the average annual wage in China was $818 versus the average
wage in the USA of $31,195 and the average wage in Germany of $19,501. It was not just
a labor cost saving, with the capital cost of establishing a plant in China in the early 2000s
about one-third of the cost of building a similar plant in Europe.
Following growth – While lower costs was a benefit for many industries the investment
in China and Emerging markets was also about following the growth as Chinese sales in
the Industrial sector grew at 10+% CAGRA over the early 2000s.
China represented 9% of global manufacturing in 2004, but by 2019, this had risen to 29%. In
contrast the 5 largest western nations as of 2004 represented 52% of global manufacturing
and this had shrunk to 34% by 2019.

Exhibit 113 - World manufacturing by country (as % of total) Exhibit 114 - GDP by regions (as a % of total)
35% 35%
30% 30%
25% 25%
% share of world GDP

% share of world manufacutring
20% 20%
15% 15%
10% 10%
5% 5%
0% 0%
China United Japan Germany India Republic Italy France UK China United Japan Germany India Republic Italy France UK
States of Korea States of Korea
2004 2010 2019 2004 2010 2019
Source: United Nations Statistics - Value added at current prices in USD Source: OECD
Could this now reverse?

Emerging markets still offer cheaper manufacturing options, but the gap has closed. Average
wages in China have increased ~10x since 2000, versus growing 2x in Germany and ~1.8x in
the U.S.
COVID-19 has brought the risks around global planning of supply chains more into focus as
companies have considered the reliability of supply if they are over dependent on one country
or region, and also now transport costs.
Early in the COVID-19 pandemic there was a lot of discussion around onshoring / near shoring
driven by the concerns around reliability of supply. However, to some degree these faded as
China reopened quicker than most Western countries and manufacturing supply chains
returned nearer to normal quite quickly (versus many other facets of life that were more
severely impacted by COVID-19). We believe that in reality as the manufacturing sector
reopened, the economics of shifting the global manufacturing base as well as factors such as
availability of affordable labor began to limit enthusiasm for onshoring. However, with
stretched global supply chains and the >6x rise in average global container transport costs
(with shipping rates from China up nearly 10x on where they were in 2019), it is now coming
back into focus as a profitability consideration.

Exhibit 115 - Blended global container shipping rates Exhibit 116 - Shipping rates by direction
all-time high and 16000

14000
USD/container
6x the long-term average
USD/container
14000 Port closures China

12000
12000
10000
10000
8000 8000 Container dislocation
Q3 2021
Q4 2021
6000 6000 during COVID
4000 4000
2000
2021
2000
0
0
Container from China to W.Europe

Blended world container rate (USD/ container) Container from W.Europe to China
Source: Bloomberg Source: Bloomberg
Near shoring and automation offer solutions

The shift is not an easy one though, and the barrier in terms of labor costs and labor availability
remain real. Many companies in the U.S. in particular are being impacted by labor shortages
in 2021. We see two main solutions:
1) Near shoring not onshoring: Manufacturing in Germany or the U.S. can be expensive,
Given the barriers of higher especially in more labor-intensive businesses. However, while China and Asia may offer
labor costs and lower low wages, there is also the potential to grow near shore. Whether this is North Africa and
labour availability, we think Eastern Europe to supply into Europe (wages in Bulgaria today are around one-sixth of
companies will focus on what they are in Germany, Poland is around one-third), or if it is Mexico or the Caribbean
near shoring (and not for the U.S.
onshoring) and improved 2) Increased automation: The other option is to increase manufacturing in higher cost
automation. markets, but replace people with machines. Automation already has a growing presence
in the manufacturing sector on an ongoing basis, already reducing costs and increasing
consistency in many situations. This should just accelerate it further.
Capital equipment companies should benefit

For most sectors this will be about cost mitigation – the shifts will only be practical if companies
Near shoring or onshoring, can sustain profit margins. Wages in the likes of Bulgaria, Turkey and Mexico have moved
capital equipment below China in recent years proving that from that perspective near shoring is viable.
companies will be the
enablers of this trend. The beneficiaries will be capital equipment companies. U.S. and European capital goods
companies will have to invest themselves to align with this trend as they look to continue to
align their footprint with their customers. However, in the main they will be the enablers of
this trend and will be beneficiaries in terms of increased demand for capital equipment and
automation products.
According to the International Federation of Robotics, the CAGR for the global robot stock
since 2019 has been +13%, and while a nascent industrial recession in 2019 and COVID-19 in
2020 have been a short-term setback, this automation trend looks set to reaccelerate in 2020.

Exhibit 117 - Operational stock of industrial robots (‘000s) Exhibit 118 - Annual new installations of industrial robots (‘000s)
3000 450
400
2500
350
2000 300
250
1500
200
1000 150
100
500
50
0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Asiai / Australia Europe Americas Asiai / Australia Europe Americas
Source: International Federation of Robotics Source: International Federation of Robotics
We do not see this shift as about new or radical technology – the industrial sector moves slowly
and “new” technologies that have the potential to be the next big thing take a long time to
We do not see this supply evolve (see 3D printing which has been a market focus for ~15 years but still makes up less
chain shift as about new or than 1% of global manufacturing). Rather, it will be continued investment in tried and trusted
radical technology, but automation solutions with a growing level of digitization and AI (which in turn will allow for
rather continued increased automation of roles that potentially previously were not seen as automatable).
investment in tried and
trusted automation As an example of the potential around automation, U.S. manufacturing accounts for ~11% of
solutions with a growing U.S. GDP ($2.7T) and ~9% of the U.S. workforce. The U.S. manufacturing sector employs about
level of digitization and AI. 13 million people. If half of these jobs were automated over a 20-year period then based on
an average wage that is currently ~$85k (according to the U.S. National Association of
Manufacturers) the cost reduction in wages would be ~$550B for the economy. Assuming a
two-year payback on investment, this would suggest that $1,100B could be spent over the
theoretical 20-year period in the U.S. alone on automation – equating to $55B per year. And
this is before you allow for the fact that this is looking at the existing footprint, not incremental
growth in local manufacturing.
The European capital goods sector was one of the major beneficiaries of the growth in Chinese
manufacturing since the turn of the century as its more global nature saw it win ahead of its
U.S. competitors. The sector grew at a 7% organic sales CAGR over 2003–2011 as it benefited
from the “super-cycle.” However, as China became more mature, this growth rate fell to only
a 3% CAGR over 2012–2019 (i.e. more than halved). Therefore, the idea of a growth in the
Western manufacturing footprint doubling sector growth rates over a prolonged period would
not be unrealistic if we were to see an aggressive shift to localization of manufacturing.

Industrial Real Estate: Just In Case inventory

Supply chains evolving to meet demand and service level expectations
Consumers expect greater product selection and faster delivery times, both of which
increase the importance of logistic networks. Successful retailers are placing more value on
their logistic networks and see it as a tool to improve the overall customer experience.
Customers today are demanding more product offering selections and expect improved
service levels. However, most logistic networks are not positioned to meet these expectations,
Supply chains today are and this issue has only been amplified by the pandemic-driven supply chain disruptions.
more interconnected across Retailers are losing sales by not having enough inventory on hand to execute orders. As a
the globe and more exposed result, more companies plan on transitioning to a just in case inventory model from a just in
to disruptions; stakeholders time model. Stakeholders are rethinking how goods are moved from manufacturers to end
are increasingly forced to consumers, and the new model will require more adaptable, well-stocked logistic networks
diversify production that could also allow for the more efficient transportation of goods.
locations where possible
Global supply chains are more exposed to macroeconomic shocks. Supply chains today are
and increase overall
more interconnected across the globe and more exposed to disruptions. These issues not only
inventory levels to attempt
stem from natural disasters, congestion, and labor disputes, but also include larger scale issues
to better navigate the
such as BREXIT, trade wars, and pandemics. Stakeholders are forced to diversify production
inevitable
locations where possible and increase overall inventory levels to attempt to better navigate
production/transportation
issues. the inevitable production/transportation issues. Prologis, Inc. (PLD) estimates retailers and
logistic companies will need to increase inventory levels by more than 5–10%, which would
translate into 57–114 million SF, or 0.63% of additional real estate demand a year over the
next five years. The inventory to sales ratio dropped considerably to 1.46x in 2019 from 1.72x
in the mid-1990s (reached as low as 1.35x in 2011) as just in time inventory models were
implemented. By our estimate, this ratio would only increase to 1.54–1.61x if stakeholders
increased inventory levels by only 5–10%.
Real estate design and locations matter. Retailers likely need to invest heavily in their logistic
networks to meet current demand and service level expectations. When Amazon announced
it was reducing the standard prime delivery time down to one day from two in 2019, the e-
commerce giant also made several announcements highlighting the expansion of its logistic
Retailers likely need to network and large inventory investments focused around major population centers. It is vital
invest heavily in their for retailers and logistic companies to operate warehouses close to population centers to
logistic networks to meet decrease delivery times. It is also increasingly more difficult to find these locations as there is
current demand and service generally a higher and better use other than industrial. This could result in real estate
level expectations. companies being more creative, developing multi-story industrial product in order to justify
paying up for the underlying land. These infill, last touch distribution centers are meant to
facilitate high throughput and are not feasible to hold large amounts of inventory. Inventory
will need to be held in facilities just outside the city, and given labor cost pressures, we could
see larger buildings with higher clear heights equipped with more automated technology to
better utilize the vertical space and reduce labor needs.
Just in Case inventory expected to be key driver of rail volume

Just in Time inventory systems benefitted trucking firms (at the expense of the rails) when
introduced during the 1970s. Just in Time (JIT) inventory systems were a key driver of trucking
volumes in the 1970s and 1980s as these systems required goods to be delivered as close as
possible to when the goods were actually needed. This benefitted trucking firms as their on-
time delivery performance during this time period was meaningfully better than the railroads.
We note that rail networks were plagued by service issues and that businesses implementing
JIT inventory systems could not rely on rail due to inconsistent delivery schedules. Rail
therefore lost significant market share to truck during JIT implementation on the back of
significant service disparity.
Rail service has improved markedly over the last decade and rail is expected to be a key
beneficiary of a transition from Just in Time to Just in Case (JIC) inventory systems. The
pandemic has created a new focus for inventory management, emphasizing the need to hold
inventory for longer periods of time in the event of significant supply chain disruption. As a
result, we see a shift developing away from JIT and into JIC. Since JIC involves holding larger
inventory, there is less of a need for extremely high on-time service – which advantages rail.
We expect the shift to Just Further, rail service has improved meaningfully due to the adoption and implementation of
in Case inventory systems to Precision Scheduled Railroading (PSR). PSR has led to improved on-time delivery and helped
reduce the importance of rail drive over-the-road conversion from truck. While rail service still lags, we nevertheless
on-time delivery and expect the shift to Just in Case (JIC) inventory systems to reduce the importance of on-time
therefore drive further over- delivery and therefore drive further over-the-road conversions to rail reflecting lower costs
the-road conversions to rail and ESG benefits of rail compared to truck.
reflecting lower costs and
ESG benefits of rail The opportunity is significant. Truck accounts for a significant portion of freight moved in the
compared to truck. U.S. with approximately two-thirds of total freight moving on truck, according to the U.S.
Bureau of Transportation Statistics. By contrast, rail transported approximately 15% of total
freight in the U.S. in 2019. We therefore see a significant opportunity for the rails even through
small share gain. For example, if rail were to gain a 1% share of total freight volume this would
represent a 7% growth in freight at the rails. Our view is that the rails with access to the biggest
ports and largest population centers in North America stand to benefit the most from a
transition to JIC inventory systems.

Biopharma: The global innovation bifurcation

The pandemic highlights global political, economic, and social divides likely to fuel future
conflicts. Though the global recovery is continuing, prospects for a rapid rebound to near-
normal conditions have weakened as outbreaks continue to disrupt global supply chains and
We see more complex policy optimistic growth numbers mask deteriorating prospects in low-income developing
dynamics fueled by an economies. The IMF predicts that by 2024 aggregate output for the advanced economies will
increasingly more assertive exceed levels predicted by pre-pandemic trends by 0.9%. By contrast, estimates predict
China setting the stage for emerging and developing economies (excluding China) will lag pre-pandemic forecasts by
higher likelihood of conflicts 5.5%. The difference is driven, in part, by widely different access to vaccines and uneven policy
and disruption. and fiscal support capabilities. Though some countries, particularly commodity exporters, may
benefit from near-term conditions, we expect as a group emerging economies will be forced
to continue to limit fiscal support amid labor disruptions, inflation expectations, and
compounding supply chain issues, ultimately limiting at least medium-term performance. With
continued economic and supply chain uncertainty on the horizon, coupled with dimmer
prospects for some emerging economies, we see more complex policy dynamics fueled by an
increasingly more assertive China setting the stage for higher likelihood of conflicts and
disruption.
U.S. near-term domestic policy must navigate the challenge of striking a balance between
innovation and access/affordability issues. Public debate around costs of medicines has been
spotlighted by the recent approval of BIIB’s high-priced Alzheimer’s treatment Aduhelm, and
is unlikely to fade with continued concern around general social, economic, and racial
inequality as a backdrop to healthcare costs. That the U.S. pays the highest healthcare costs is
an undeniable fact, but this effective subsidization of global R&D is also balanced by the U.S.
having significantly greater access to medicines vs other areas like the EU (~90% vs 70–50%).
How to address this delicate balance is even less clear, with a range of proposals including
international reference pricing, direct government negotiation, favored nation pricing, more
Balancing innovation and targeted proposals aimed at the highest priced drugs, capping price increases, or a
access / affordability issues continuation of the current policies. The impacts of any policy are also difficult to gauge – we
will be key in the coming estimate that biopharma profits could be impacted in the 5–10% range, while trade
years. We think a middle-of- organizations like PhRMA suggest the impact could be as much as 40% to revenue.
the-road approach will Additionally, we note the impact on innovation varies as well, with some estimates by the CBO
prevail, with moderate suggesting a 10% decrease in the number of new drugs brought to market over the next 10
concepts like greater price years (~30 drugs), with a top range as high as 100 fewer drugs over the decade. Ultimately, we
transparency, value based think a middle-of-the-road approach will prevail, with moderate concepts like greater price
pricing, and potentially transparency, value based pricing, an accelerated path for generics and biosimilars, potentially
inflation caps on price inflation caps on price increases, as well as the potential for out-of-pocket caps in certain
increases balanced by segments of the population (e.g., those on Medicare), balanced by greater funding for
greater funding for innovation. We expect these could help control costs and improve efficiency and equality of
innovation. care but still maintain innovation. However, striking this balance is likely to remain a challenge
over the next decade.
Globally, we expect greater focus on intellectual property protection and potentially more
narrow academic exchange. Debate around intellectual property rights, with the U.S. backing
strong IP protection vs. a more lax approach in China, is likely to complicate policies and
regulations around cross-border agreements and joint venture formation within healthcare.
Likewise, academic free-exchange and cross-border investment might come under greater
control if the U.S. government continues to prosecute violations of funding agreements that
limit interactions with foreign governments. Though the Committee on Foreign Investment in
the U.S. (CFIUS) has traditionally been more associated with high-tech and military hardware,
we see possibility for increased scrutiny around biotechnology potentially limiting foreign
funding of sensitive U.S. biopharma. We see limited direct near-term impact to innovative
biopharma, which tends to operate on a more limited geographic scale in pre-revenue phases,
but potential talent shortages could emerge if visa regulations are tightened. We do, however,
see potential for addressing healthcare need in the developing world, though note potential
for complex requirements and pricing particularly for highly innovative products such as gene
therapies and complex biologics. Notably, PTC Therapeutics markets Waylivra, Tegsedi, and
Translarna in developing markets including Brazil and Russia where political risk may be higher
than in developed markets. In rare diseases, including DMD (Sarepta Therapeutics, PTC
Therapeutics), AADC (PTC), HAE (BioCryst Pharmaceuticals), Huntington’s (PTC, Neubase
Therapeutic), diagnosis and patient identification lacks in developing markets where advanced
diagnostics and genetic screening are significantly less common. Manufacturing and supply
chains, particularly for generics, could be disrupted by conflict as occurred during the
pandemic, and the U.S. has indicated a desire to be less reliant on foreign manufacturing
operations for pharmaceutical products.
Outside traditional biopharmaceuticals, there exists opportunity for biotechnology

particularly in food security and environmental protection. Though mostly early stages,
companies are developing plant non-animal based ‘meats’ and sources of protein, in part, to
We see a need for more
address environmental strains associated with farming. With global concerns associated with
sustainable and productive
deforestation and land mismanagement increasing, we see a need for more sustainable and
agriculture particularly in
productive agriculture particularly in the developing world and note the potential for
the developing world and
agricultural biotechnology to improve farming practices. Though the industry has not seen the
note the potential for
same level of innovation and product development as biomedicine, the technology for
agricultural biotechnology
genetically modified crops stems from the same building blocks used for advanced
to improve farming
therapeutics and we expect eventually a surge in interest and development likely led by a
practices.
combination of large agricultural companies and innovative start-ups.

Decentralized Finance: The “Conflict Economy” will need a currency

We foresee the rise of conflicts as potentially propelling the use of cryptocurrencies (no
opinion on which one) as a means to transfer value, while maintaining equality and operating
outside the traditional regulatory & centralized framework. A point in fact is that a totally new
token could be created for this vary purpose or be created by various factions in order to
We foresee the rise of fund/support a specific cause. As conflicts escalate, a parallel world of trade will emerge, which
conflicts as potentially will increasingly expose consumers to the benefits of anonymity vs. the need to “trust” in a
propelling the use of centralized authority. As a result, we expect Decentralized Finance (DeFi) to rapidly emerge.
cryptocurrencies as a means Although still in its infancy, there are already ~ $80B (as of May 2021) of digital assets in DeFi
to transfer value, while services, up from ~$1B in 2019 (and we believe that, in concert with greater conflict, that this
maintaining equality and number could massively increase). In addition, the number of DeFi related apps grew from 8
operating outside the to more than 200 from 2019 to 2020, while users increased from ~100K to ~1.2M over that
traditional regulatory & same time period. As with Crypto in its early beginnings, as consumer onramps become more
centralized framework. easily acceptable through the various Decentralized Apps (Dapps), we believe more financial
services will reside on a blockchain settlement layer, including payments, lending, trading, and
investments.
Exhibit 119 - Digital assets locked in DeFi smart contracts ($M), FY21E is through May 2021
$80,000
$13,000
$670
2019 2020 2021*

Source: World Economic Forum, RBC Capital Markets

Software: Cybersecurity
We believe digital transformations will continue to increase, which expands the attack-
surface making cybersecurity the precursor to digital transformations. As an enabler of
secure change, we feel cybersecurity will increasingly be a source of competitive
differentiation for worker enablement, expanding security budgets, and helping to realize
the perimeter-less network.
Creating solutions; looking to the future

Over the next 10 years, we believe the core value proposition of security will expand. Creating
a secure network environment has become more challenging as environments widen in a post-
pandemic world becoming increasingly hybrid and complex to accommodate the “new
normal” of work. At the same time, we’ve seen an increase in bad actors, particularly in the
form of nation-states targeting enterprises. In the end, we believe security transformations
will need to become a precursor to digital transformations.
In a period of digital transformation, enterprises are looking to accelerate their transition to

the cloud and hybrid work environments, which is creating new stresses for security to avoid
We believe security being a limiting factor in this advancement. As such, we view security as the key to worker
transformations will need to enablement, moving beyond a cost to unlock productivity by safely enabling employees to
become a precursor to work from anywhere on whatever device and with whatever applications they are most
digital transformations and efficient. This is a major revolution in what the security industry can be, which is increasingly
view security as the key to reflected in security valuations as investors realize the magnitude of TAM expansion these
worker enablement. trends are driving.
Security is no longer a siloed or isolated part of the technology stack, but the center for
integration. This enables digital transformation to be done safely while allowing for the speed
and agility of these new environments to be secured intrinsically. Looking forward, we feel
that from SMBs to federal governments, organizations are going to be looking for security
transformation as a precursor to digital transformation, with a regulatory and threat
environment that should only accelerate the transition. The keys to these new environments
in our opinion will be context-based identity, enabling secure access from anywhere, and
protecting cloud workloads.
Starting at the top

While viruses and malware have been around for many decades, in recent years attacks have
increased in both their breadth as well as their sophistication. As advancements continue in
areas like DevOps and cloud computing, similar techniques are being utilized by bad actors to
lower the bar for becoming an adversary to a simple download from the dark net. There is an
additional set of bad actors that have become more sophisticated in attacking a broader set
of targets and taking advantage of increased attack surfaces from cloud environments. We
believe security tools need to evolve even faster to keep pace with these evolving threats.
Overall, we believe the use of cloud-based security solutions will increase dramatically over
the next 10 years.
One particular challenge over the past year has been an increase in attacks from nation-states
during the pandemic. According to Nation States, Cyber-conflict, and the Web of Profit by HP
Wolf Security, there has been a 100% increase in ‘significant’ nation state incidents between
2017 and 2020. 75% of the experts surveyed for the report agreed that COVID-19 represented
a significant new opportunity for Nation States to exploit seeing a 40% rise in Nation State
incidents between July to September 2020, compared to January to June 2020. While this feels
like a matter of government policy, and it is, in an analysis of over 200 nation state incidents

since 2009, the report shows that enterprises made up 35% of the targets compared to
government bodies and regulators at 12%, a ~3x difference.
With nation-states both providing funds as well as safe havens for bad actors, the question will
continue to rise around what is a proportionate response to a non-kinetic cyberattack? To
date, the damage has been largely financial, leading to financial responses in the form of
increased sanctions. Looking at the future of these trends, the largest change would be if we
start to see increased attacks against critical infrastructure such as power grids or cyber-kinetic
attacks, designed to cause physical damage through the use of cyber-warfare.
This remains a situation where the best offense is likely a good defense; we feel the recent
Executive Order on Improving the Nation’s Cybersecurity is a good place to start. The U.S.
government is following the enterprises’ lead to create a more robust network environment
including adopting a Zero Trust Architecture and accelerating its movement to secure cloud
services. This remains a major tailwind to the cybersecurity industry, and dealing with the
growing risk of attacks as well as the financial and reputational ramifications is the greatest
pure security tailwind to the industry, one that we feel will support security budgets for years
to come.
New problems need new solutions

Traditional networks were built around on-premise data centers, which made sense in a pre-
cloud world. When desktops, data, software, applications, and users all resided within the
traditional network perimeter, this strategy was effective, but as endpoints and workers
became distributed and the rise of the cloud sent software and applications off-premise,
enterprises needed to increasingly modify the network perimeter to accommodate the “new
normal” of work.
As enterprises found out with COVID-19, traditional infrastructure was never designed to scale
out when companies tried to adapt continuity plans (which were typically suited for 15–20%
remote workers, and then quickly went to 100%). While workers and devices being remote
may be new, the software, applications, services, and data have become increasingly remote
over the past several years.
We view the future as enterprises moving from surviving to thriving in a distributed work
We view the future as environment. The Secure Access Service Edge or “SASE” is a security strategy to support the
enterprises moving from digitization of the enterprise and the dissolution of the traditional network perimeter, allowing
surviving to thriving in a for security at the point of access. SASE converges network (SD-WAN) and network security
distributed work services (such as SWG, CASB, FWaaS, and ZTNA) and is primarily delivered as a cloud-based
environment. service.
SASE is enabled by policy-based security that can be applied at the point of access revolving
around the ability to properly identify endpoints and users and understand access
requirements. This type of dynamic policy-based security requires a next-gen solution that can
combine the speed and scale of the cloud-based environments they are securing.
As seen below, based on our interpretation of Gartner (“Forecast Analysis: Secure Access
Service Edge, Worldwide” by Joe Skorupa and Nat Smith, July 27, 2021), the industry is taking
notice of the needs for these technologies, with SASE technologies expected to grow at a CAGR
of 36% through 2025 reaching $15B. This compares to the overall information security and risk
management CAGR of 10% over the same time period. We feel that this framework is going to
be increasingly important post-pandemic as enterprises are now protecting a perimeter-less
environment, which requires security to be much more flexible and dynamic to adapt to these

ever-changing requirements. Importantly, this highlights that while the pandemic has sped up
these trends, we are still in the early innings of security transformation.
Exhibit 120 - Forecast SASE
2020-2025
2020 2021 2022 2023 2024 2025
CAGR
SD-WAN $ 1,006 $ 1,622 $ 2,335 $ 3,113 $ 3,950 $ 4,906 37%
Firewall $ 251 $ 631 $ 1,068 $ 1,553 $ 2,072 $ 2,633 60%
SWG $ 1,296 $ 1,737 $ 2,223 $ 2,789 $ 3,447 $ 4,153 26%
CASB $ 340 $ 549 $ 825 $ 1,213 $ 1,740 $ 2,330 47%
ZTNA $ 229 $ 285 $ 354 $ 440 $ 546 $ 677 24%
Total 3,122 4,823 6,805 9,107 11,755 14,700 36%
Source: Gartner “Forecast Analysis: Secure Access Service Edge, Worldwide” by Joe Skorupa and Nat Smith, July 27, 2021
User-centric security
As mentioned previously, we believe the largest security-centric tailwind to spend is the rising
threat environment and the expanding attack surface. In our opinion, the largest overall driver
We believe security has for security comes from a perception shift through the pandemic. Security has evolved from a
evolved from a cost into a cost into a source of competitive differentiation for user-enablement that ultimately results in
source of competitive both costs savings and revenue generation. In short, security has gone from a more reactive
differentiation for user- department focused on prevention to a more proactive department focused on securely
enablement that ultimately enabling employees to work from the location, with the device and applications that make
results in both costs savings them most productive.
and revenue generation.
One of the most important aspects of the SASE framework, and an area that we think could
have faster growth than reflected above, is in Zero-Trust Network Access. A cornerstone of the
government’s new cybersecurity initiative, ZTNA provides identity-aware access. Removing
network location as a position of advantage eliminates excessive implicit trust, replacing it with
explicit identity-based trust. We feel ZTNA will continue to see tailwinds from the move
towards user-centric security and a focus on secure enablement.
ZTNA improves the flexibility, agility, and scalability of application access, enabling digitally
transformed businesses to function without exposing internal applications directly to the
Internet (they become invisible), reducing the risk of attack. Companies can have much more
control over east–west traffic with fine-grain application access without opening up the entire
network. This idea of creating the least amount of privilege possible is consistent with the
defensive approach of zero-trust. Secondarily, organizations rely on ZTNA to allow unmanaged
devices and external partners to securely access applications without the need to trust the
device connection.
While this definition sounds restrictive, the outcome is the opposite, allowing users to utilize
applications from any device and any location by making security identity aware. This allows
the system to grant access based on the individual users and not make blanket policies that
restrict access towards least privileged users.
We continue to view security and workforce enablement as a balancing act. What we have
come to realize from conversations with vendors, customers, and users is that the companies
themselves do not always get to control that balance. Not only does it benefit employee
satisfaction and retention to let employees work from wherever and with whatever device and
application they feel are most efficient, it also benefits security because employees are likely
to do these things anyway. The first step to securing a perimeter-less network is visibility. By
embracing distributed workforces, unmanaged devices, and business applications, enterprises
can gain a fuller network visibility and mitigate risk while driving efficiency. The key to this
balance is context, identifying high-risk assets and access while enabling general work on a
broader scale. This will accelerate the need for AI/ML as well as security at the new perimeter,
which are the users themselves.
When we think about user-centric security, it encompasses both giving the user freedom
through identity and access management solutions, but also recognizing the user as
statistically the weakest point in the enterprise environment. As network cybersecurity
posture continues to improve, users evolve much less quickly and there is no patch to stop
users from clicking on phishing e-mails. We feel the user will continue to grow as a threat
vector, which will result in even more focus on minimizing the attack surface of the individual
by bringing security to the edge and focusing on each individual based on the context of who
they are to the environment.

Insurance: Cybersecurity and physical risk

Cyber risks are growing and evolving quickly. Three years ago, data breaches were the main
concern and attacks were focused on stealing sensitive customer information. More recently,
ransomware attacks have come to the fore that seek to collect quick payment in exchange for
the release of company systems.
These two types of attacks have different real-world implications for insurers and
policyholders and increasingly transcend the lines between the virtual and ‘real’ economy.
Exhibit 121 - Cost and frequency of ransomware attacks are rising
Source: Net Diligence Cyber Claims Study, 2021
The May 6th ransomware hacking of the Colonial Pipeline was a well-publicized example. In
practical terms the cost was quite low – 75 bitcoins (about $5M at the time, 63.7 of which
were later recovered) but the economic impact was far greater with widespread fuel shortages
throughout the Southeast, airline disruptions and untold number of plans that had to be
delayed, altered or cancelled.
Another, more tragic example occurred in recent weeks. During July & August 2019, the
Springhill Medical Center (a hospital in Alabama) was under siege from a ransomware attack.
The hospital was without computer systems for 8 days. During that time, a baby was delivered
with the umbilical cord wrapped around its neck. The child died nine months later and there
has been a lawsuit ongoing ever since over who bears responsibility for the death. Depending
on what judges ultimately decide – it could be the first ransomware death in history.
Ryuk, the hacker group responsible for the attack, has attacked 235 hospitals and healthcare
facilities as of June 2021, according to a Wall Street Journal report. The software has collected
more than $100M in payments during this time, an average of nearly $700,000 per attack.

Numerous studies and surveys point to cyberattacks and ransom attacks as top concerns of
both companies and managements as well as individuals.
Who pays for cyberattacks? How they should be insured? Where does shared liability begin
and end? These are just a few of the questions that companies, insurers and governments will
increasingly need to address.
Sizing the cyber-risk market & a potential cyber-catastrophe

The cyber-insurance market has been growing rapidly in recent years and projections are for
further growth. A.M. Best data suggests that U.S. cyber premiums have doubled in the last 5
years to nearly $2.7B. Both packaged and standalone policies have seen substantial growth
during the period as awareness of the risk has grown.
Exhibit 122 - Premium growth has been substantial in recent years ($M)
Source: A.M. Best data & research
Industry projections are for further growth through 2025. Forecasting company
MarketsandMarkets™ indicated that they saw total global cyber premiums rise to $7.8B in
2020, and they think it could grow 21.2% annually to over $20.4B by 2025.
Ultimately, the size of the cyber-insurance market will be dictated by the size of the overall
risk to be insured, and this is where questions begin to arise. As a nascent and growing risk, it
is difficult to ascertain what the potential size of the cyber-insurance market could be in the
next five or ten years, but all signs are pointing to bigger than today.
Unfortunately, for insurers, as fast as cyber insurance premiums are rising and policies are
being written, claims counts and costs are rising faster. In the five years following 2016, U.S.
insurance premiums doubled whereas total claims increased by 259%.
Aon reported that cyber rates for most clients would rise by 20% to 50% in 2021, mostly in
response to the proliferation of ransomware events since 2018. Total ransomware events rose
486% between 2018 and the end of 2020, while data breach and privacy events were down
slightly in 2020.

Exhibit 123 - U.S. cyber claims have nearly quadrupled in the last 5 years
Source: A.M. Best data & research
We think that a bigger question for the burgeoning line of business is who will underwrite all
this risk? With claims rising, several insurers have acted to tamp down tail risk by lowering
limits and raising prices. New entrants have begun writing cyber insurance but the market
remains fairly concentrated.
Ultimately, we would expect pricing & fears of undefinable large losses to force some self-
insuring, but we think the cyber-insurance market is likely to be a growing mainstay longer
term. As insurers get a better grasp of the risk they are writing, we would expect appetite for
premium growth to match the growing level of overall market exposure and the business line
to grow substantially.
How is market penetration changing? While the market has grown substantially in the past
five years, cyber coverage gaps continue to exist across broad areas of the economy. By 2020,
global insurance broker Marsh & McLennan reported that just 47% of its clients purchased
cyber insurance, compared to 26% in 2016. That still leaves over half of customers largely
uninsured.

Exhibit 124 - Cost and frequency of ransomware attacks are rising
Take-up rate of Marsh McLennan clients (percentage)
50 47
42
40 38
31
30
26
20
10
0
2016 2017 2018 2019 2020
Source: GAO presentation of data from Marsh & McLennan (GAO-21-477)
Marsh noted that cyber coverage is still primarily bought by large companies, not small and
mid-market businesses, meaning the less well-defended mid and small cap companies are
more vulnerable to attack and uncovered in the event of the attack.
Data remains central to most businesses. We think over time cyber insurance will be as
common as property and general liability coverage and maybe even more important.
High-profile data breaches are likely to continue to be a sales driver: The best advertising for
cyber coverage is large cyber losses. A number of reports from brokers and industry groups
have suggested that one of the top reasons for new clients inquiring about cyber insurance is
large public events (Capital One, Equifax, Target, Colonial Pipeline).
Cybercrime is not an intuitive risk: Cyber exposure is not something that one thinks of
naturally when thinking of business risk. Most companies do not appreciate their vulnerability
nor anticipate why hackers would find them an attractive target.

Exhibit 125 - MunichRe cyber-insurance survey results: 2021
Source: Munich Re
What are the emerging risks? We think the primary vectors for cyber exposure are pretty well
known. The recipe of hacking + ransomware is pretty well explored and while the software
may change, these sorts of attacks from individuals remain the thing that should keep
investors and management teams up at night.
Cyber threats are a constant arms race. No sooner do companies and managements identify
one threat and figure out how to defend it then a new threat emerges.
What’s next? There’s no way to know but imagine the following:
 What if there are court decisions ruling that certain losses caused by cyberattacks extend
out to other areas like property, business interruption that carriers did not think were
covered?
 What if it becomes more common for consumers to have cyber insurance that could go
alongside their auto and home insurance policies? Will customers need separate cyber
liability coverage for their autonomous vehicle?
 What if the U.S. was hit was a massive cyberattack that caused outages at several major
institutions or parts of the country? What are the implications and what would the insured
loss total look like?
 Imagine an update to a widely popular app that renders phones inoperable. Where does
liability begin and end for cyber events that are not intentionally disruptive, but turn out
to be so?
 What if there was a major cyberattack on the U.S. government by another country and
what would be the economic fallout?
The emerging risk we see as the most likely concern is the proliferation and increasing
interconnectivity of the world. A recent forecast from IDC predicts that there will be 75.4
billion devices connected to the Internet of Things by 2025, up from around 27 billion at the
end of 2019. That is a lot more areas for hackers to find weakness, and these access points
connect into a system that is increasingly interdependent.

The connectivity increases the number of weak links in the system, opening new areas for
hackers to attack. As technology proliferates, the possibility of hacks rises and the severity of
attacks could rise as a result of increasing potential for cyber contagion.
What would a cyber “catastrophe” look like? We have seen a number of cyber attacks that
impact individual companies or sectors. The question remains what a widespread contagion
attack would do, and what it could mean for economic and insured losses. Several years ago,
Guy Carpenter partnered with CyberCube to take a stab at this topic and identify what a cyber
catastrophe could be. This could really happen at almost any time and realistically it is a matter
of when, not if such an attack will occur.
Exhibit 126 - Largest source of risks (by average annual loss and max loss)
Source: Guy Carpenter, CyberCube Analytics
Guy Carpenter and CyberCube identified data theft from an email provider and a ransomware
attack on a cloud service provider as being potentially the two most catastrophic insured loss
events. The group identified that losses from the two most likely, in their view, events, would
be roughly $22B to $24B. These sizes are rather large and essentially are equivalent to a good-
sized hurricane.
Exhibit 127 - U.S. insured loss distribution by scenarios ($B)
Source: Guy Carpenter, CyberCube Analytics
We do not know which scenario will arise and prove to be a devastating cyber event, or when
it will occur. In insurance, managements often use a form of analysis called probable maximum
loss (PML) to assess the risk and size of loss in extreme situations. We do not think this is a one

in two event (one sort of loss every two years), but it is not unreasonable that large cyber
losses could begin to occur every 5, 10 or 20 years as we become increasingly tied to
technology.
Cyber-insurance as a solution
Alongside cybersecurity spending, cyber-insurance has been a fast-growing sector of the
market in the last decade. The growth has been aided by an increase in client interest and an
increase in price per unit of risk, as the pace and scale of cyberattacks has accelerated.
The U.S. government as a backstop: Although there have been no claims to test these
backstops, while private insurers can price individual risks and losses, some have speculated
that existing government insurance provisions could cover cyber-terror losses. There has also
been commentary that existing programs, such as the Terrorism Risk Insurance Plan, could be
extended to also cover cyberattacks.
In 2021, the General Accountability Office (GAO) undertook a study of the cyber-insurance
market and the government’s role in helping proliferate the coverage. One of the items in the
report focused on the definition of cyberterrorism and its applicability to TRIP (Terrorism Risk
Insurance Plan), which was established in response to the September 11th attacks.
The TRIP backstop is triggered when the U.S. Treasury Department certifies an act of terrorism.
The definition in the act reads, “must be violent or dangerous to human life, property, or
infrastructure, generally result in losses in the United States, and be part of an effort to coerce
the civilian population of the United States or affect the conduct of the U.S. government by
coercion.” To date, no attack has resulted in TRIP being activated.
The question then is could a cyberattack trigger this provision? This is a question the GAO will
be exploring in future reports but our read is that it could, and we would expect future
development on the cyber front as the government seeks to respond to attacks.
The attacks on hospitals and the Colonial Pipeline show that critical infrastructure can be
damaged, altered, or destroyed by cyberattacks. Loss of life is also possible. With increased
automation in rail systems, airlines, and public transit, one can envision a cyberattack creating
a mass casualty event, or significant property loss.
The question of a government backstop remains a longer-term prospect with the way things
work in Washington D.C., but we would think that more clear guidelines and regulation are
coming to the sector. One would hope the changes are anticipatory as opposed to reactive,
but we will have to wait and see.
Current private offerings: Private cyber insurance is an evolving product and can mean a lot
of things. The product sold today has changed meaningfully in the last five years and by 2025
we would expect further evolution to occur in response to changed attack tactics and evolving
buyer need.
Today’s policies are sold as either standalone, or alongside existing liability products. Cyber
policies typically cover incidence response, loss of information and regulatory and compliance
costs. This will include things such as credit monitoring, notification, cost to fix the breach
and/or restore data and any information tech costs. What is typically not covered is
consequential damage resulting from fraud associated with the lost information – that is
normally self-insured.

Exhibit 128 - Theoretical losses from data theft at leading email service provider
Data restoration Business

1% interruption costs
9%
Legal liability
25%
Investigation and
response costs
65%
Source: Marsh & McLennan
Based on our experience, normal limits for large financial institutions are around $250M. Other
coverages could potentially take this higher but it is unlikely, at the maximum, to be any more
than $500M. Limits have been tightening over the years and pricing has risen dramatically as
areas of loss are more clearly understood.
For a claim, there will be some initial funds advanced fairly quickly under the policies, but it
tends to take at least two years for full claims resolution based on experiences at Target and
Experian.
One of the bigger changes in recent years has been the attempt to remove “silent” cyber
coverage from broader policies. Silent coverage means that the policy could in theory cover
cyber based on its wording, but cyber is not the intended purpose of the policy. AIG announced
in September of 2019 that as of 2020, all policies they issue would explicitly cover or exclude
physical or non-physical cyber exposures (meaning you will be specifically charged for cyber
on all your policies).
We expect to see similar moves at companies that are not already explicitly
including/excluding cyber coverage and expect to see product terms and conditions tighten
substantially as insurers batten down the hatches as cyber becomes a larger risk.

Biopharma: Amid global conflicts, IP matters, biotech an example

We expect continued U.S. leadership in biomedical innovation, though China’s ambitions
may further politicize global healthcare efforts. The U.S. retains the largest share of global
biotechnology venture capital investment, with Asia-Pacific second and Europe third.
Investment in basic and translational research has paid dividends and we continue to believe
U.S.-led biotechnology is in an innovation boom and expect advances in biomedicine,
agricultural biotechnology, and potentially new fields including industrial and marine
biotechnology. Reputational advantages persist at U.S. biomedical institutions, particularly the
FDA - where decisions and debate over drug approvals have considerable influence globally.
Nonetheless, China has ambitions of global leadership in innovation, and aims to increase R&D
spending 7% per year from 2021–2025, with a particular focus on cutting-edge industries
including biomedical research, neuroscience, genetics, and healthcare generally. Indeed,
debate surrounding “vaccine diplomacy” and China’s preference for tying commercial
incentives or loans to vaccine “donations” highlights the potential for healthcare allocation to
be used to influence strategically important emerging nations. China’s domestic biotechnology
industry is also growing and increasing in sophistication, with support from the central
government, and investment by domestic VCs, coupled with an increasing entrepreneurial
business culture driving mid-to long-term potential. We believe current and likely future U.S.
administrations will continue to recognize the value of continued U.S. biotechnology
leadership, recognizing the intangible investments required to maintain our position and that
defending U.S. healthcare/biotech interests could both fuel conflict and generate
opportunities for investment.

Imagine Industry Implications
Table of contents
Consumer ......................................................................................................................... 224
Energy and Utilities .......................................................................................................... 231
Financials ......................................................................................................................... 234
Healthcare ........................................................................................................................ 237
Industrials ........................................................................................................................ 241
Materials and Mining ....................................................................................................... 245
Real Estate ....................................................................................................................... 250
Technology, Internet, Media and Telecommunications .................................................... 253

Consumer
Consumer – The Quest for Immortality
The movement towards a healthier lifestyle has been one of the most important consumer
trends over the past few years, it has accelerated during the pandemic, and we believe will
become even more important over the next five years. We believe consumer health will
improve both as a result of breakthroughs in medicines and therapeutics, as well as
consumers’ individual choices towards healthier life options, such as a focus on healthier
food/beverage options, a more active lifestyle, and improving mental health. These factors will
drive fundamental changes in the way consumer staples companies operate and interact with
their consumer base.
 Longer retirements. Thanks to breakthroughs in medicine and therapeutics, increased

healthcare access, and healthier lifestyles, we believe average life expectancy will increase
across the world, and particularly in developed countries. For example, based on OECD
data, the average life expectancy for women and men in the U.S. at 65 has risen to 21 and
18 years respectively, from 16 and 13 years in the 1960. In Japan, average life expectancy
at 65 is 25 years for women and 20 years for men, up from 14 and 11 years in 1960,
respectively. Most of the developed world is going to converge to Japan over the next five
to ten years. With longer life expectancy, the number of years each consumer spends in
retirement will increase, even net of an expected increase in retirement ages. As a result,
companies need to prepare for a higher percentage of their consumer base being
represented by retirees and start to think about adjusting their product offerings and
marketing messages.
 Expansion of consumer spending curve and further trade up. Longer life expectancy and
longer retirements will also result in an expansion of consumer spending curves.
Companies could benefit from this by increasing their consumers’ lifetime value by
focusing on loyalty rates and retention rates. In other words, each consumer acquired is
much more valuable given a longer spending curve. Importantly, as consumers age, they
tend to spend more on higher-end items (again, Japan is a great case study here).
 Importance of self-care. When combining rising healthcare costs with an aging
population, we believe consumers will increasingly focus on self-care in order to sustain
healthier lifestyles. We see this trend emerging in consumer healthcare products (e.g.
OTC, vitamins, supplements, etc.), food & beverages (e.g., healthier/better-for-you
options, plant-based proteins, etc.), and home-fitness devices (wearables, Peloton, the
Mirror, etc.). Ultimately, consumer companies will need to offer products that enable
people to manage their own health and wellbeing. Several innovative products and
services have been developed and are being tested.
 Further income divide. We’d expect the “quest for immortality” will materialize unevenly
across different consumers based on income, demographics, and infrastructures. This
should further increase the health and wealth gap between consumers at the two ends of
the income spectrum. As a result consumer products companies need to be ready to
market and offer products to an even more polarized world, offering products at different
price-points.
 Rising importance of mental health. One of the many effect of the COVID-19 pandemic
was a significant increase in mental health disorders across a significant part of the
population, including emotional distress and anxiety. Companies offering therapy-on-
demand, such as Talkspace, saw large increases in their user base during the pandemic,
highlighting consumers’ need for mental health services. Going forward we’d expect an
increase focus on mental health from consumers and governments, with potential for
companies to offer new products and services.

 Progress on brain health. Our healthcare team sees brain health as the area likely to see
the most significant advances over the next decade. With potential treatments for brain
diseases, such as Alzheimer’s and Huntington’s diseases, we’d expect the life quality and
brain function of many older consumers will improve significantly. As a result, consumer
companies need to be prepared to communicate and target their message towards an
older and healthier consumer base.
 The plant-based win-win: Healthier diets is a key element in consumers’ quest for
immortality. Danone found 47% of younger generations are eating healthier and 30% are
willing to actually pay a premium for that. The plant-based segment correlates closely with
this trend – meat and dairy look-a-like products made from plant-based proteins such as
soy, pea, fermented mycoproteins and oat are often lower calorie with more fibre and
less fat.
Consumer – The Individual Revolution

As power shifts from the “institution” to the “individual,” we see several implications for the
consumer sector. Advances in science, the “shrinking” of technology will enable consumers to
receive real time feedback on their lifestyle—heightening the need to develop more custom
and personalized products. In addition, the way brands will be built in the future will revolve
more around influencers and recommendation than direct messaging from the company.
 The consumerism of healthcare: Advancements in science and technology have enabled

the movement of devices that were once exclusive to hospitals to retail shelves. Take for
example the finger pulse oximeter, which measures blood oxygen saturation. The
technology for this was developed in the 1930s, originally measuring via the ear, and the
first finger pulse oximeter was not commercialized until the 1970s in Japan, and the 1980s
in the U.S. pulse oximeters have been staples in hospitals for decades. Developed for the
demand of measuring oxygen during surgery while the use of ventilators during
anesthesia became ever more common, they revolutionized the work of
anesthesiologists. In certain wearables, features such as pulse ox monitoring are already
available, such as in the Apple and Samsung smart watches. While there are notes on
caution about the accuracy and reliability of these tracking and data (which we expect to
improve over time), we expect similar evolutions to take certain products and categories
away from being exclusive to the medical realm and into the area of general consumer
health, wellness, and personal care. Continuous glucose monitors are another great case
study of the consumerism of healthcare. Today, consumers can get a real time read on
their blood glucose levels and manage their diets and lifestyles accordingly (obviously
useful for diabetics but also people looking to manage their weight). Other like devices
and diagnostics are being developed in labs around the world that we believe will provide
even more “data” for consumers to use to manage their buying decisions. Importantly,
the consumerism of healthcare could make traditional demographic targeting obsolete as
consumers will start to make decisions based on their own bodies versus some
stereotypical behavior based on a race/gender/ethnic segmentation.
 Centers of influence are shifting: Historically, large consumer companies would leverage
massive advertising budgets to influence consumers to buy their products and services.
Given the ubiquity of social media, consumers are now taking an increasingly amount of
their consumption cues via recommendation from other individuals (social media
influencers, friends, family, reviews online). This dynamic will fundamentally disrupt the
marketing models for the entire consumer sector. Given the rising importance of
recommendation, we believe consumer companies need to focus on product efficacy
(does it taste better, clean better, make you feel better) and storytelling.
 Disruption from gig economy. From a labor market standpoint one of the key
consequences of the “individual revolution” has been the rise of the gig economy, which
was accelerated by the COVID-19 pandemic, as consumers want the ability to work when
they want to work. This resulted in a large numbers of employees quitting their jobs: in
August 2021, 4.3M Americans quit their jobs, representing 2.9% of the workforce, the
highest quit percentage ever reported by the Bureau of Labor Statistics. Consumers have
many options when it comes down to the gig economy ranging from ride-sharing jobs
(Uber, Lyft, etc.) to delivery services (Instacart, Postmates, etc.), professional services
(Freelance, 99design, etc.), household services and handmade goods (Etsy, Care.com,
etc.), and asset-sharing services (Airbnb, etc.). These jobs are also becoming increasingly
attractive with a ~$15-30 per hour earnings potential from many ride-sharing jobs vs. a
$7.25 per hour minimum wage. We expect this trend to continue and accelerate going
forward: based on a study from Mastercard the number of global gig workers is expected
to grow by over 80% by 2023. We’d expect this will result in increasing labor challenges,
and labor inflation, for consumer companies in manufacturing, packaging, and
transportation jobs.
 A data focused environment = heightened consumer expectations. Data and CRM have
become a key way for businesses to know their customers. We expect to see even greater
levels of personalisation moving forward, with retailers leveraging their data analytics to
present a more tailored offering to their consumers, thereby driving increased traffic,
both physically and online. For omni-channel businesses, we believe that greater insight
will be driven by combining databases for online and in-person customer interactions.
 Direct-to-consumer growing in prominence. In retail, we are seeing brands looking to
grow their DTC offerings, thereby squeezing out a number of smaller retail partners. The
brands are now looking to connect more directly with their consumers. We expect that
multi-brand retailers that will maintain their premium positioning with the brands, will
be those offering a unique experience or exposure to a customer base or a level of
customer loyalty that the brands cannot achieve themselves. Brands want more data
about customers to help with better assortment planning and demand forecasting.
Retailers can provide this and it should be a win-win relationship.
Consumer – Artificial Intelligence Activated

Over the next decade AI will become a critical component of every part of consumer
companies’ businesses from R&D to manufacturing and sales & marketing. While the prior
decade has been mainly focused on understanding the potential benefits of AI and acquiring
capabilities, we believe the next decade will be centered on putting the concepts into actions.
We see many applications of AI in the consumer space in terms of internal processes
(improving operational efficiencies with greater automation, accelerating R&D) as well as
external outputs (AI-enabled products and services, more personalized product offerings
leveraging consumer data).
 Automation across the organization. From an internal organizational standpoint, we see

broader application of AI as significantly improving the efficiencies of consumer staples
companies from manufacturing (AI/machine learning, 3D printing, robotics) to packaging
(automation of variety packs), marketing (AI-enabled analysis of consumer data), as well
as talent acquisition and employee training. We’d expect these improvements will result
in increased efficiency for consumer companies, leading to cost savings and potential
margin improvements.
 Accelerated R&D and reduced time to market. We believe one of the main advantages
of broader AI applications in consumer products will be the acceleration of R&D cycles
and the reduction of the time it takes companies to bring new products to the market. AI
will enable consumer companies to process the increasingly high amount of data collected
through social media, e-commerce websites, wearable devices, to develop products
customized to individual consumers in a shorter timeframe. Accelerating the speed to

market has been a key area of focus for most consumer companies given consumer
preferences are changing faster than in the past and being able to respond to consumer
preferences will be a key driver of market share performance. This is particularly true as
a number of venture-capital backed start-ups have emerged in the CPG space, providing
a more nimble competition to large-scale consumer companies. As a result, companies
that will be able to successfully integrate AI and data analytics into their R&D and
innovation processes, will be the relative market share beneficiaries in the next decade.
 AI-enabled product offerings. AI will also allow companies to offer new products and
services that are more customized, which will be key as consumers will demand more and
more personalized product offerings (as we discussed in the Individual Revolution
section). Examples of AI-enabled products include several beauty products and brands,
such as Proven, a skincare company that feeds consumer data into its AI platform
(containing more than 100,000 products, 8M+ testimonials, 4,000+ scientific publications)
to provide the most effective ingredients for users, or Atolla, a company which uses AI
capabilities to customize facial serums for consumers using data collected to test. New AI-
enabled devices are also being launch, such as Perso by L’Oreal, the first AI-powdered
device able to formulate and dispense personalized skincare and cosmetic products, or
Keurig K-Supreme Plus SMART, a coffee pod machine that recognizes the K-cup pod used
and customizes the brew settings to that particular coffee pod.
Consumer – Hybrid Living

As consumers adapt to a new hybrid way of living with less focus on physical spaces and an
increased importance of virtual and digital spaces, consumer companies need to rethink their
internal structures to adapt to a new working environment and also need to increase their
marketing and advertising reach into the virtual world. Traditional consumer companies have
succeeded for centuries in the physical world and have been able to build very strong brands
with their presence at retail and on-premise locations, large advertising campaigns,
sponsorships of mass gathering events, and celebrity endorsements. With a change in the ways
of living for most consumers globally, consumers companies will face many challenges to keep
their brands at the top of mind of consumers.
 Future of work and rethinking of workspaces. The COVID-19 pandemic has clearly
accelerated a shift in the work environment from the office to the home, or at least a
hybrid model. One of the key findings from the pandemic was that a large majority of
white-collar jobs could be performed entirely remotely with increased productivity and
reduced costs for employers in the form of lower travel and office expenses. While near-
term we expect many companies to push to at-least a partial return to the office, we
believe the long-term trend towards remote working is clear. A recent Gallup poll showed
that 45% of full-time U.S. employees worked from home in September 2021 either entirely
(25%) or partially (20%), a still very high number, albeit down from 69% at the beginning
of the pandemic. Among white-collar employees, 67% of full-time workers worked at-
home in September vs. 83% at the beginning of the pandemic. Importantly, employees
working remotely are happy with the new work arrangement, citing avoiding commute
time, improved wellbeing, and better work/life flexibility as the main reasons for their
happiness. We believe it will be hard for companies to call back white-collar workers with
return to the office mandates as ~54% of current remote workers saying they likely or
extremely likely to quit their job if employer does not offer remote or hybrid work options.
As a result, we’d expect many companies to right-size their office spaces, offer hybrid
work solutions to retain talent, and potentially go fully virtual in the not-so-distant future.
We also believe new start-ups will likely adopt the virtual model, having a potential
competitive advantage vs. larger companies in terms of lower SG&A expenses. As an
example, hair care company Olaplex, which recently went public, operates a completely
remote working model.
 Cocooning and reduction of physical social interactions. One of the key consequences of
increased remote working is a reduction of social interactions, leading to more isolated
lives. This trend was already occurring pre-pandemic, particularly among younger
consumers. Based on a 2016 YPulse survey 70% of millennials and teens indicated they
would rather stay home than go out on the weekends, a trend exacerbated by the rise of
social media interactions, digital platforms, videogames, and virtual reality. We’d expect
this trend to accelerate with a new generation of consumers growing up in the COVID-19
era and, as a result, more likely to avoid large gatherings, large social interactions, and
with less occasions to spend time with friends/coworkers due to changes in the work
environment. In this environment, consumer companies will be forced to evolve their
marketing and advertising strategies focusing on reaching consumers where they spend
their time (social/digital platforms, videogames, virtual reality) and finding ways to
recreate some of the experiential aspect of their brand in a home environment.
 Gamification of everything. According to the 2021 essential fact report from the
Entertainment Software Association, nearly 227 million Americans across all ages play
videogames (up from 150 million in 2015), or ~68% of the U.S. population, with about
two-thirds of adults and three-quarters of kids under 19 playing video games weekly.
Additionally ~51% of gamers spend 7+ hours per week on videogames. The rapid increase
in videogame usage over the last decade and further increases in the adoption of virtual
and augmented reality will force consumer companies to shift from the physical world
towards the virtual world to reach their consumers. As a result, we see an increase in in-
game advertising, allowing companies to showcase their brands within videogames, and
we’d expect companies to use virtual reality to market brands more broadly.
 NFTs. The rise of Non-Fungible Tokens, “NFTs,” unique (as in irreplicable), blockchain-
derived digital assets, ranging from music to art, fashion, sports, will allow consumer
companies to bridge the physical and digital experience and deepen consumer
relationships. In our vision of the future, programmable NFT certificates could deepen
brand-customer relationships by unlocking certain features to reward consumers based
on the depth of interactions with the brand. Some companies are already leveraging NFTs
to strengthen consumer relationships in a digital world. For example, cosmetics company
e.l.f. Beauty recently launched NFTs for its most popular beauty products, with those
purchasing the NFTs also receiving a certificate of authenticity and ownership. High-end
fashion brands, such as Dolce & Gabbana and Jimmy Choo, have also recently launched
their own NFTs.
 Bespoke formats are more desirable. We believe that further localisation is likely to be a
particular theme within retail in order to foster a unique buying experience. This is likely
to be the case particularly within the travel retail space. We expect that landlords now
look for operators that can custom-make a store to suit the key demographic travelling
through a specific airport, in order to maximise footfall and thereby revenue. The use of
data to analyse customer spend patterns is likely to be key in order to allow operators to
adapt to rapidly changing consumer spending patterns.
 More than just a store. We think that the most forward looking retailers have transitioned
their stores away from just a selling location into event hubs. For example, we note that
certain retailers have been hosting regular events and performances in their stores in
order to generate footfall and to showcase product. We expect that this will become a
wider theme in the sector over the next decade, with stores becoming more of a
destination for consumers.
 Robotics leading to the “mall of the future.” In markets such as South Korea, we have
been seeing the growth of shopping malls that seek to provide a more relaxed shopping
environment for the consumer, such as the newly opened Hyundai Seoul mall. This
involves the use of robots to greet customers on entry, wider passageways and more
natural light. In order to promote the idea of “retail therapy,” the mall has incorporated
rest and recreational spaces and indoor gardens. We see these developments as an
indicator of what is to come in the global retail space, with physical retailing becoming
increasingly experiential.
 Benefits of the digital channel. Digital ordering has been a tailwind for restaurants’
average check growth, driven in part by larger order sizes and a higher average number
of items per check (also benefitting margins). Restaurants have also used digital-only
promotions to increase customer engagement, and as a result, drive higher frequency.
Beyond driving sales growth via higher average check, other benefits of digital include
operational efficiencies (e.g., improved speed of service), and the development of key
marketing tools.
 Growth of loyalty programs. Given the recent rapid adoption by customers of
restaurants’ digital ordering capabilities, more large, mature, fast-food brands have rolled
out their own – in some cases, long-awaited – loyalty programs. Some of the restaurant
industry’s most successful loyalty programs – notable examples include those for
Domino’s and Starbucks – have not only driven order frequency, but have also provided
restaurants with key insight into customer behavior for marketing purposes.
 Restaurant development & reimaging. Given the growth in digital ordering and the
resultant impact on restaurants’ off-premise sales channels, restaurant prototypes are
now evolving towards digitally enabled formats or features, including restaurants with
dual drive-thrus, mobile pickup lanes and digital menu boards. Major fast-food brands,
including quick service and fast casual concepts, have introduced new prototypes that
incorporate more technology throughout, highlight takeout and delivery and improve
operational efficiency.
 The emergence of virtual brands and ghost kitchens. The rise of these formats (off-
premise-focused channels, with food prepared in central kitchens or existing restaurant
kitchens that have excess capacity) ramped up during the pandemic, and in some cases,
have rapidly driven meaningful levels of sales. For casual dining brands in particular, given
how they are used (i.e. a majority dine-in) and frequency of use (i.e. less habitually used
than a QSR brand), virtual brands have been a significant driver of off-premise sales.
Consumer – The Great Balancing Act

As the world population continues to rise access to the limited amount of natural resources as
well as data and technology access will become increasingly important and will lead to rising
in geo-political tensions, increase in cyber terrorism incidents, and trade conflicts among
nations. This will create an even more challenging operating environment for consumer
companies, particularly multinational companies with operations in several markets around
the world. We’d expect multinational companies will have to localize their business, increasing
autonomy of local regions, and will have to find new ways to secure raw materials in a
challenging global environment.
 Geopolitical tensions. The UN World Population Prospects study sees world population
reaching 8.5 billion by 2030 (from 7.9 billion in 2021), 9.7 billion in 2050, and 10.9 billion
by 2100. Humans are already consuming more natural resources than the planet can
continue to sustain, with a 2021 study showing the current world population is using 173%
of the world’s total biocapacity (i.e. an ecosystem production capacity of natural
resources and its absorption of materials such as carbon dioxide from the atmosphere).
As world population continues to rise, we believe access to natural resources will become
increasingly challenging and lead to geopolitical tension between nations, particularly
between the current developed world (US, Western Europe) and the emerging global
powers (China, India). In addition to natural resources, we’d expect significant tensions
will rise among nations for the control of data and technology, which have already become
the key drivers of economic development. We’d expect these factors will create a
challenging operating environment for many consumer companies, particularly
multinational companies with significant operations overseas.
 Cyberterrorism. We’d expect the next decade will see more cyberterrorism incidents,
both state-sponsored and privately-sponsored, as well as an increase in cyber wars
compared to traditional military conflicts. According to statistics reported by Norton, in
2020 the FBI received more than 2,000 Internet crime complaints per day, and the first
half of 2021 saw a 102% increase in ransomware attacks compares to the same period in
2020. According to Cybersecurity Ventures, global cybercrime costs are expected to
growth by 15% per year through 2025 reaching $10.5B annually. The May 6th ransomware
attack of the Colonial Pipeline was a well-publicized example, leading to significant
disruptions in the Southeast. Consumer companies were also targeted, with a
ransomware attach on meatpacking company JBS affecting 10,000 employees in June
2021 and causing an increase in meat prices. With the rise in cybercrimes, cybersecurity
measures and data protection will become more important for consumer companies
because of the potential damage to business operations, as well as reputational risk with
data breaches.
 Localization of multinationals. Globalization has been the major economic force over the
last century and allowed many U.S. consumer companies to expand their presence across
the world and establish some of the most well-recognized brands globally (think Coca-
Cola). While we don’t expect globalization to reverse, we believe large-scale multinational
consumer companies will have to increase the localization of their operations to more
effectively compete in a challenging geo-political environment. This trend has already
started with many consumer products global companies pushing responsibilities to the
local markets and changing their organizational structures to be more nimble and make
decisions locally in a quicker way. For example, Procter & Gamble and Coca-Cola have
both announced global reorganizations removing layers of approvals and pushing
decision-making closer to the consumers. More localization should allow multinational
consumer companies to respond faster to changes in local consumers, compete more
effectively with local competitors, and better navigate geo-political challenges.
 Raw material sourcing challenges. With our expectations of increasing geo-political
challenges, cyber-attacks, and conflicts globally, we’d expect that raw material sourcing
will become incrementally more challenging for consumer staples companies over the
next decade. This will be a particular challenge for commodities, where production is
concentrated in a few countries. Cocoa is a clear example, with over 60% of the global
production concentrated in the Ivory Coast and Ghana. We believe companies relying on
such commodities, for example chocolate companies such as Hershey’s and Mondelez,
will need to find ways to secure raw materials with longer contracts or diversify their
sources to ensure availability of raw materials.
 Peer-to-peer platforms driving resale in retail. We think that digital developments in the
form of peer-to-peer resale platforms have made it quick and easy for consumers to
access the second-hand market, with minimal direct involvement. These platforms also
allow consumers to access both sides of the market, as both buyers and sellers. Looking
forward, we expect greater demand for newness but also sustainability to drive peer-to-
peer resale as a way to refresh consumer wardrobes at a low cost, supporting both value-
for-money and sustainable purchasing.

Energy and Utilities

Energy and Utilities – The Quest for Immortality
From a sector perspective, we believe the drive to extend individual life spans as well as the
quality of life for future generations will continue to have an impact on how we produce energy
and how we consume energy. Specifically, we see the key theme impacting the sector as
revolving around the shifting nature of energy demand to "green" energy, which includes
utility-scale renewables, distributed renewable generation, "greening" conventional energy
production, and emerging technologies.
 Addressing the existential risk related to climate change. Whether it be a view of a broad
existential risk to the human race or just the existential risk to hydrocarbon produced
energy, we believe steps being taken to address climate change will be a key driver for
investment themes well into the future with many of these infrastructure-based solutions
creating numerous large-scale multi-billion dollar investment opportunities.
 Carbon capture will be an important part of addressing climate change. As highlighted
in a recent RBC ESG Stratify™ report titled Carbon Capture & Storage – Dare to Dream Big
(please click here), we believe carbon capture, use and storage (CCUS) has a wide-range
of applications within the sector, including providing the potential to use existing
hydrocarbon resources on a zero-emission basis. However, economic returns are fragile
given the capital intensity and reliance on carbon prices and/or government policies and
we look to a combination of incentives, penalties and economics from using carbon
production to help underpin returns to accelerate the buildout of CCUS facilities.
 New energy generation technology as well as increased use of lower carbon fuels will
be key to baseload supply. Many existing renewable energy technologies suffer from
being intermittent resources (i.e., their supply is variable and/or at times when the energy
is not needed) and currently, those resources are often backed up by carbon emitting
generation such as natural gas-fired facilities. As such, we see an opportunity to enhance
baseload supply via emerging technologies such as nuclear fusion (especially from small
modular reactors) as well as decarbonizing fuels (e.g., hydrogen, renewable natural gas)
for combustion turbines will also be key.
Energy and Utilities – The Individual Revolution

Individuals will have increasing options to take greater control of their energy consumption,
how energy is produced and where energy is produced. In addition to shifting patterns for
energy consumption (e.g., time of day, location), we believe some individuals will take further
steps to go "off the grid" or look to supply the grid with electricity via generation and/or
connected battery storage (i.e., "Prosumers").
 Prosumers: a new work-from-home income generating opportunity. To date, utility-

scale renewable facilities have been the major driver behind a significant increase in the
mix of electricity coming from "green" sources. However, improving economics behind
distributed generation and smaller-scale battery technology could underpin the rise of
"Prosumers," who provide excess generation back into the grid with another benefit being
reduced transmission "line losses." To date, distributed "net generation" capacity has
been relatively immaterial, and in some jurisdictions, regulators have stifled the
economics.
 What's in it for me? With energy from "traditional" sources being reliable and affordable,
we believe policy-makers and regulators will need to use a combination of carrots and
sticks to change consumer behavior. On the incentives side, we see the potential for a
broader roll-out of subsidies to electrify heating sources (e.g., converting from a furnace
to an electric heat pump) or changing utility regulatory frameworks to provide enhanced
economics for customers that produce power into the grid or provide ancillary services
such as battery reserves (e.g., from their electric vehicles). For penalties, we note the
increased use of carbon taxes or time-of-use pricing can help push consumers to lower
carbon energy consumption choices.
Energy and Utilities – Artificial Intelligence Activated

The use of artificial intelligence has a broad range of direct applications, particularly in the
utility space, and indirect implications for the oil and gas sector. Generally speaking, we view
the role of AI as one of improving efficiency and safety in the Energy and Utilities sector.
 Coordinating the grid including distributed battery storage. Artificial intelligence can
optimize what will likely become an increasingly complex system of generation supply and
customer demand. Specifically, we see applications for AI including the coordination of
utility-scale power generation facilities and smaller distributed generation, including the
use of electric vehicle batteries for storage and discharge.
 Predicting demand and providing customers with the ability to shape energy usage. On
top of the role of AI in managing the electric grid, we believe that AI can help consumers
optimize their energy usage, particularly in jurisdictions with time-of-use pricing, as well
as maximizing the efficiency and net-cost/net-revenue for "prosumers" who can provide
electricity back into the grid via distributed generation and/or offering up their electric
vehicle batteries as storage (without sacrificing a charged battery when the consumer
needs their vehicle). Instead of consumers and businesses being reactive and having to
take action to optimize energy consumption, AI-driven solutions can be proactive by
incorporating demand patterns and external data (e.g., weather) to provide consumers
with greater comfort (e.g., heating or cooling) and savings (e.g., automatically reducing
energy usage when it is not needed).
 Optimizing maintenance schedules including enhanced pipeline integrity. Companies in
the sector are using machine-learning techniques to process vast amounts of data to
identify equipment defects and estimate time-to-failure rates that allow operators to
optimize the inspection and replacement schedules with the aim of increasing reliability
and reducing the total overall cost (including costs related to unplanned outages).
Energy and Utilities – Hybrid Living

We believe a greater focus on the "home as a hub" will result in changing consumption
patterns (e.g., location, time of day, nature of the energy consumed) and accelerated adoption
of distributed generation.
 Rising residential consumption could lead to increased overall energy demand (at least
temporarily). With factors such as hybrid work and a shift from multi-dwelling units to
larger homes outside of the cities, we see a shift to increasing residential energy
consumption. However, we believe this could drive higher overall energy demand given
lower efficiency associated with residential energy infrastructure (e.g., air conditioning
units) versus those in office buildings as well as it being unlikely that commercial floor
plates will shrink in tandem with the rise in hybrid work (i.e., office buildings will have full
lighting, heating and cooling in addition to rising residential energy consumption).
 A concentration of residential energy demand could result in a greater degree of
distributed resources. If households concentrate more of their activities around the
home, increased electricity consumption in a residential environment (and away from
commercial consumption) could lead more consumers to look at distributed renewable
energy resources (e.g., rooftop solar).

Energy and Utilities – The Great Balancing Act

We believe that government policies and regulations that will drive the pace of
decarbonization investment may have unintended consequences that could drive greater
socio-economic and geopolitical divides. On the flip side, as we have seen in the fight against
COVID, the ability to direct resources to address the global pandemic has resulted in numerous
breakthroughs in record time.
 An aggressive energy transition appears set to drive a bigger wedge in the socio-
economic divide. We believe that many policies and programs that could be put in place
to support the energy transition may have the unintended consequence of further
exacerbating the gap in wealth. For example, we see unintended consequences from
carbon taxes being used to drive electrification (e.g., the wealthy can easily absorb the up-
front costs of switching to electric vehicles and heating infrastructure), and distributed
generation where renters, those living in high density housing or those who cannot afford
the upfront costs (e.g., rooftop solar deployment and battery backup) will not have the
opportunity to profit from "net generation" (or worse, these consumers may face higher
utility costs if wealthier individuals go "off the grid" resulting in the socialization of utility
costs among a smaller base of less wealthy individuals).
 Geopolitics: a new era of cooperation or a new front for division? While there may be
increasing coordination in terms of high level aspirations (e.g., Paris carbon reduction
targets), the energy transition has the potential to drive increased global tensions as it
relates to: (1) countries that are unable (or unwilling) to take the steps, and bear the cost,
of meeting their Paris targets; (2) countries that are currently major hydrocarbon
producers that face the existential risk to the economics underlying oil and gas production
and at the same time the potential of increased near-term geopolitical power given
currently high oil and gas prices with the likelihood of a continued increase in demand for
oil and gas in the coming decade; and (3) the race to secure raw materials critical to
components of the energy transition (e.g., cobalt for batteries), many of which are located
in geopolitically sensitive areas.
 Technology poised to play a major role in offsetting politically unpalatable rising costs.
While there is a push for electrification, we believe that transitioning residential natural
gas-based infrastructure (e.g., furnaces, boilers, hot water heaters, stoves), which is
predominant in cold-winter climates will come at a significant cost to the point where we
do not believe it will be politically palatable to force that cost onto individual consumers
(and by extension, voters). As an alternative, we look to emerging technologies such as
small-scale carbon capture, use and storage (CCUS) in residential applications, greater use
of automation (both supply and demand response) to reduce the overall cost of energy
and the energy delivery system, and the continued reduction in the cost of existing
renewable technology (e.g., solar, batteries, renewable fuels) as well as the potential for
new clean energy technology (e.g., hydrogen, nuclear fusion).

Financials
Financials – The Quest for Immortality
From a sector perspective, we believe that the quest for immortality will drive consumers to
seek out all kinds of new and alternative healthcare measures and services, and therefore
solutions will need to be developed to help finance this activity. Specifically, we believe the
success of BNPL installment lending within retail goods and services and lead to similar types
of financing measures for healthcare. Longer term, we believe that consumer digital health
records can even be incorporated into this financing, effectively creating risk grades and/or
rewards systems. As life expectancy also continues to expand, consumers will demand
sophisticated wealth management products that can provide predictable income sources that
can last the rest of their lives.
 Success of Buy Now Pay Later (BNPL) will translate to installment lending towards all
kinds of healthcare treatments. While the quest for immortality may be therapeutically
making progress, consumer’s ability to finance this noble quest is far more cryptic and
aiding to the ever-widening wealth/health gap. Given the recent success in the Buy Now,
Pay Later movement, we believe similarly structured products will spill over into consumer
healthcare and more specifically post insurance payments. We foresee a world whereby
installment lending, based on a credit profile, capacity to pay, and insurance plan, will be
used to offer individuals specific payment plans in advance of procedures. This type of
innovation could be coupled with a consumers’ digital heath records directly into a health
tracking App (think Apple Health), as a means to determine the insurance algorithm,
which would effectively work as a rewards system.
Financials – The Individual Revolution

Individuals will increasingly become aware that they have value as the ultimate end-product
for social media and technology companies. Thus we believe the concept of “self-
monetization” will become an increasingly prevalent theme as consumers wrest control of
their data for themselves and attempt to monetize it through technology. Additionally, we
believe that the increased use of block-chains should help generate change in business models
across the banking sector over the next several years, as well as promote the use of digital
currencies.
 Self-Monetization should be an increasingly prevalent theme as consumers start to

realize their own value in the context of social media. As consumers increasingly
recognize that they are the product as it pertains to consumption of social media, we
believe companies’ ability to extract vast amounts of data freely from consumers is
coming to an end. As a result, we believe there needs to be a mechanism to exchange the
value to consumers from social media companies such that consumers can be rewarded
for the use of their personal data, a concept we refer to as self-monetization. Digital
tokens are well equipped as a means to monetize personal data, which can easily be
transferred to a consumer’s digital wallet and/or the social network’s platform. We
believe that millions of individuals could then be tethered to specific organizations that
rely on aggregation of mass data. We believe tech platforms that monetize our data for
free will have to create a similar direct monetization channel. If we look to the creator
economy as a guidepost for the self-monetization economy, we believe the opportunity
could prove very large and disruptive.
 Blockchains can help drive accelerated model change within the financial sector in time.
For consumers, digital currencies and stablecoins can be used to on-ramp financial
transactions. Though it remains to be seen if the overall number of blockchains increases
or declines, in highly specialized and regulated markets like banking and finance, we
currently expect to see an increasing number of specialized blockchains. Ultimately, we

expect these blockchains to change the business models of some businesses within their
respective ecosystems. Some businesses will be more impacted than others, with some
thriving from new or enhanced value propositions, while others facing continual structural
pressures. With the OCC giving banks approval to issue stablecoins for banking
transactions, it could be possible for different banking stablecoins to emerge with the
potential for one taking dominance the next two years. The stablecoins would be used to
on-ramp financial transactions on a blockchain, but could also potentially be used as a
form of real-time gross settlement.
Financials – The Great Balancing Act

We believe that sustained climate change could have profound long-term impacts on P&C
insurers as climate and weather patterns become more severe and unpredictable, while the
proliferation of infectious disease will impact life insurance. For the banks, green financing
solutions are rising, and we believe that increasing government mandates and regulation to
support sustainability could have modest negative impacts on the banking sector in general
through stranded assets, higher capital needs, and rising loans.
 Property and Casualty Insurers face rising catastrophe frequency and severity as climate
and weather patterns change over time. P&C insurance companies have been at the
point of the spear of climate change for several decades bearing direct financial
responsibility for the impact of severe weather events, an increase in natural disasters
and related human made catastrophes. Our property and casualty insurance coverage
faces the most clear impacts from climate change with the most glaring impact being the
changing nature, frequency and strength of both normal and catastrophic weather events.
In simplest terms, climate change makes weather and catastrophic events more frequent,
more severe and more unpredictable, which proves a distinct challenge in risk
management and modelling.
 Life mortality and morbidity could be impacted by increasingly contagious and deadly
diseases, as well as potential increases in exposure related casualties. Climate change
could have drastic impacts on life expectancy through the further proliferation of
infectious disease, which could impact morbidity and mortality assumptions for insurers.
Changes to society from relocation of individuals into cities could also impact life
expectancy. Finally, climate itself will also take a toll as death from heat exposure and cold
exposures become more frequent as weather becomes increasingly irregular and life-
threatening events become more frequent.
 Transition to Green Financing will impact long-term bank profitability. The transition to
sustainability will impact the profitability of banks and other financial institutions.
Stranded assets, higher capital requirements and higher loan losses are potential risks to
bank profitability longer term. On the other hand, those banks that have positioned
themselves well to support this transition, should gain market shares (e.g., in green bond
issuance, financing of renewables, sustainable investments) and attract a premium in
share prices for their reputation.
Financials – Artificial Intelligence Activated

With massive gains in technology and cost savings, bank systems now appear to be designed
for more iterative development and extensibility. Banks have been quickly adopting AI over
recent years, but we believe that penetration of AI in the banking sector is still limited and that
there will be a profusion of trials and errors on where investments are made over the next
several years. We think AI investments and development, however, will follow a path similar

to what we have seen in bank M&A – far more likely to realize one’s own cost savings than to
generate new revenue synergies.
 Middle/back office to be more streamlined. One of the highest value areas where we see
AI impacting the banking industry is in the middle and back-office. We have seen many
banks overhauling business processes that are overly complex with lots of paper being
pushed. Employees who have been the most impacted are back-office workers who
handle data entry and/or data management and anything paperwork related. We expect
banks will continue to methodically review their business processes to understand the
steps and resources required and to completely overhaul the process with AI bots where
prudent.
 Front office to see increasing usage of bots/virtual assistants and to be more automated.
The use of bots and virtual assistants has already begun, and we see this increasing as the
AI programs improve. Aside from chatbots and virtual assistants replacing call centers and
becoming increasingly able to offer customers personalized insights, we also see pressure
in other banking jobs, particularly brokers, bank tellers, and eventually financial advisors.
We do not believe AI programs will replace these jobs, but we do believe that there may
not be a need for the same number of employees in those positions. What we see is AI
being augmented with these jobs, resulting in increased productivity outpacing the
growth in potential clients.
 Risk management/fraud detection to be further augmented and strengthened with
human interaction. With the digitization of banking products and services, the level of
fraud has increased dramatically along with the sophistication of the fraud. Machine
learning, which can adapt and learn, is critical in keeping pace with fraudulent actors and
improving fraud detection.
 Trading to be more automated with deep investments in equipment and scientists. We
believe that as this segment, AI-based trading, matures, there will be a higher focus on
the equipment and the talent. This would be similar to what we’ve seen with the growth
in high frequency traders where the advantage was in the equipment and location of the
trade. There will be a continued arms race to develop smarter AI programs with each
iteration.
Financials – Hybrid Living

Our belief is that the industry’s shift towards mobile banking and the increased portability of
every-day financial transactions into phones has already occurred. In the years ahead, in
addition to mobile phones the banking experience will be delivered to consumers across other
connected smart devices while offering continuously improving user experience and
functionality. The ability to interact with your bank through any channel in any location will be
table stakes.
We are seeing this transition being powered today by newer fintechs that are increasingly
focused on capturing market and mind-share of younger millennial and Gen-Z demographic
cohorts through the proliferation of peer-to-peer services and applications. The banking sector
has already and is likely to continue to spend billions over time overhauling digital banking
capabilities and streamlining branch networks to accommodate the preferential shift towards
mobile banking as the primary form of consumer banking.

Healthcare
Healthcare – The Quest for Immortality
We believe that no sector is better poised to both capitalize on, and drive, the quest for
immortality than healthcare. We have seen major breakthroughs in oncology, infectious
disease, and brain health, and have seen how rapidly the translation of basic science into
paradigm shifting medicine can happen, as evidenced by the rapid development of the COVID-
19 vaccines. The sector’s promise and focus on innovation can attract new capital, but we
expect growing pains too – increasing regulatory scrutiny, as well as budgetary challenges in
making life changing medicines available equitably to all.
 New breakthroughs bring opportunities to patients and investors. Over the past decade,
we have seen many new drugs approved for both rare and common diseases that have
both extended lives for patients in highly meaningful ways (hepatitis C cures, CFTR
modulators in cystic fibrosis, etc.), demonstrating a clear value proposition while also
securing multi-$B franchises for their developers. We expect this innovative core to
remain a driver as we enter the next legs of drug development, focusing more heavily on
biologics, cell therapies, gene therapies, and gene editing, and we already see hints of
potential paradigm shifts on the horizon, ranging from the targeting of previously
undruggable cancer mutations such as KRAS, to the correction of lethal childhood
muscular dystrophies. As companies continue to push the limit of innovation, we see bold
ideas reaching the capital markets earlier and earlier, and expect biopharma to begin to
tackle aging itself.
 Expect the sector to grapple with cost, access, and the challenges of continuing to
innovate. On the flip side, bold ideas may not always make for successful products (CAR-
T uptake challenges in oncology, gene therapy struggles in the EU), and finding the right
balance between cutting edge treatments, pricing, and access may prove to be a
continuing challenge in healthcare. Truly transformative treatments are hard to come by,
and we expect biopharma to continue to struggle with Alzheimer’s, Huntington’s, and
aging over the course of the next decade, despite the possibility that a major
breakthrough can come at any time. Further, as the “low hanging fruit” is picked off, we
can expect greater spend on R&D, which needs to be recouped, and greater regulatory
scrutiny for showing meaningful benefits to patients, all potentially leading to higher drug
prices, further straining an already fragile healthcare system.
 Remote ‘Tele’surgery: Remote surgery capabilities include a range of solutions to make
surgery more accessible. This includes digital case support platforms that connect medical
device teams to providers and allows them to remotely share best practices and
collaborate in real-time during a live procedure. Remote surgery capabilities are being
adopted by a wide range of users, but Remote telesurgery is in the future of medical
device surgery and Remote stroke intervention is the ‘holy grail’ for remote surgery as
time is of the essence.
Healthcare – The Individual Revolution

Personalized medicine is no longer confined to our dreams – it is here, and present in a wide
range of healthcare services, from genomic sequencing of cancer to tailor treatment to an
individual’s tumor profile, to rare pediatric diseases being treated with gene therapy, to the
promise of gene editing correcting a patient’s mutation within their own body. We continue
to see personalized therapeutics making waves and moving from rare diseases to more
common indications, potentially expanding the total addressable market and leaving fewer
and fewer patients behind.

 Expect continued investment in gene therapy, ASOs, cell therapy, and gene editing. The
estimated capital deployment across these four areas has grown from $27B in 2016 to
$140B in 2021 (see Exhibit 41), and we would expect these trends to continue, with gene
editing potentially being the growth leader. However, we acknowledge that in biotech,
progress is not often a straight line, and we could see less successful programs fall by the
wayside, due to off-target adverse events, low efficacy, or poor commercial execution,
and drive greater investor caution and moderate the capital influx into this space.
 Continued expansion of personalized medicine has the potential to drive long-term
biopharma growth. As technologies improve – most notably more accurate gene editing,
better tolerated conditioning regimens, and allogeneic cell therapies, we anticipate that
these breakthroughs will gradually make the promise of personalized medicine available
to most patients. Those currently excluded because of their immune system, the rarity of
their genetic mutations, or because their disease is too advanced, will become eligible as
technology improves to treat patients better and faster, which could help grow the market
over the long term. Finally, as these better technologies scale, we expect both patients
with ultra-rare diseases (which currently may not be economically viable to pursue due to
low patient numbers) to benefit, as well as those with more common diseases with
cheaper standard of care therapies, as the value proposition of a personalized genetic
approach becomes more favorable.
 ‘Smart’ implants and remote patient monitoring: Smart implants are implantable devices
that not only provide therapeutic benefit to treat an underlying disease, but also provide
diagnostic capabilities. Smart implants allow for patient monitoring up to two decades
post-surgery (e.g., in knees) and may result in improved diagnostic capabilities overtime
aided by artificial intelligence. Smart implants could be game-changing for the medical
device industry over time as data obtained from the devices could lead to refinements in
implant designs, surgical techniques, and strategies for post-operative care as well as
rehabilitation.
Healthcare – Artificial Intelligence Activated

R&D costs are one of the top cost drivers in biopharma, and consequently, healthcare as a
whole, and more efficient processes can increase the hit rate, develop better drugs, and speed
development while reducing costs.
 Expect greater collaborations between biopharma and tech as well as potential

validation of the approach over the next decade. We are already seeing the seeds of
biotech and big tech collaborations being planted, with giants such as MSFT and NVS
collaborating, but also among smaller biotechs with AI driven pipeline and discovery
platforms. Over the next decade, we expect to see if AI can truly lead to better molecules
which navigate the clinical and regulatory hurdles of drug development better, potentially
saving billions in costs, or whether human input and rational design is still essential in
therapeutics.
 AI has the potential to bring down healthcare costs by maximizing efficiency and
alleviating labor shortages. With 5–10% of hospital employees employed in the revenue
cycle, processes to automate the patient experience and billing cycle could significantly
improve the traditionally thin margins of the hospital systems. We expect greater
adoption of automation software, and expect it to reduce hiring pressures, alleviate
staffing shortages and affect most steps in the billing process from patient scheduling to
claims denial management.
 Autonomous robotics: One of the most significant innovations in medical devices has
been the advent of robotics that has seen strong adoption. Despite that, robotics is still in
its infancy with respect to the scale and scope. It appears to be a moonshot opportunity
today, but eventually we believe surgeries will be done by autonomous robots controlled
by artificial intelligence (AI) algorithms that receive input from an array of visual and haptic
sensors. Robotic surgery has advantages that should minimize surgical variations and
make it the standard of care over time. We expect the field of robotics will continue to
expand beyond soft-tissue surgery.
Healthcare – Hybrid Living

While the pandemic accelerated the growth of virtual healthcare and telemedicine, we have
reason to believe that these trends will outlast the COVID-19 pandemic and become a mainstay
of healthcare. By offering more convenient service, faster scheduling, ease of access to
specialists, reducing costs, and actually delivering care in the home, we believe virtual
healthcare can add value and improve outcomes, and we expect continued growth and
investment in the sector.
 Virtual healthcare can bring high quality, complex patient care to the patient while
keeping costs low. Telemedicine is more than just video conferencing, and can range from
mental health visits and tailed prescriptions, to nudges and checkups on behavioral,
exercise, and nutritional goals, and even hospital at-home services which can provide care
for asthma, COPD, heart failure and pneumonia. Increasing engagement and simplifying
logistics can benefit both patients and providers, and we believe the quality of care,
bolstered by new technologies and devices, is being underappreciated by the markets and
we remain bullish on the sector’s growth, even beyond the COVID-19 pandemic.
 Immense opportunity is being bolstered by strengthening tailwinds. The U.S. spends
over $3T on healthcare annually, underscoring the potential size of the market that can
be addressed – and we see room to grow, as adoption is still in the early stages. We believe
empowered consumers, more advanced technology, greater data validating the link
between telemedicine and positive outcomes, and the easing of the reimbursement and
regulatory landscapes, combined with integration and collaboration with the software
industry, will drive accelerating growth in the coming years.
Healthcare – The Great Balancing Act

Healthcare has traditionally been considered a highly inelastic good – and the placing of dollar
value on a human life and well-being (either directly or indirectly through drug pricing) has
been extremely controversial, underscoring the need to find an appropriate balance of public
vs. private interests in this sector. Across the globe, we see that each country finds this balance
in a unique place, but also the U.S. dominance is being challenged by innovative companies
from China, where R&D spending is rapidly accelerating.
 Striking the balance between innovation and access will likely be a key theme in the
years to come. The rising cost of healthcare is often cited as a top issue among the U.S.
electorate, but on the other hand, high-priced medicines with long patents are important
to recoup R&D costs and drive new, high-risk innovation. With continued deadlock in
Congress for the foreseeable future, and no clear solutions on the horizon, we expect the
debate on how to manage costs to continue over the next decade, the uncertainty of
which can pose an overhang for the sector and continue to keep generalists out.
 Growing international threats to the U.S.’s biotech dominance may continue to keep
the sector in focus. China aims to increase its R&D spend by 7% year over year, and with
a focus on cutting edge industries and vaccine diplomacy, the country is positioning itself
as a major biotech force. We believe striking the right balance between international
collaboration, a major driving force in science, and national interest, particularly when it
comes to supply lines and technical skills for essential medicines, will be a focus and could

drive both U.S. government investment (through moonshot initiatives and ARPA-H) and
greater regulation of the industry and potential on-shoring requirements.

Industrials
Industrials – The Quest for Immortality
The primal drive to extend individual life springs eternal, as well as the quest to improve the
quality of life for future generations. These drivers will continue to have an impact on how
industrial companies operate and interact with their customers, suppliers, and employees.
Specifically, we see the key theme impacting the sector as revolving around developing new
products and services that improve safety and/or produce better health outcomes.
 Automated smart vehicles can reduce fatalities and increase productivity while also
providing potential health monitoring benefits. Crash injuries are estimated by the WHO
to be the eight leading cause of death globally for all age groups, and 94% of serious
crashes are due to human error. As a result, autonomous vehicles have the potential to
be dramatically better than human drivers. We also highlight how the car is an ideal
location to serve as a health sensor such as with biometrics.
 Indoor Air Quality (IAQ)/Healthy Buildings movement arose due to COVID-19 and should
improve the focus on healthy indoor environments for decades to come. The COVID-19
pandemic has been a wakeup call to safeguard our indoor environments against the
spread of future contagions. The public awareness on indoor air quality and its associated
potential health risks are expected to fundamentally change the way buildings air filtration
and disinfection systems operate. Gone are the days of building owners/tenants accepting
last-generation stale office building air circulation and the associated “petri dish” of
worries.
 Space infrastructure rapidly on the rise: Beyond the domain of governments for national
security and scientific purposes, a commercial space market is rapidly emerging. The key
drivers of this market development include substantial reductions in the costs to access
space, on-satellite capacity and capability expansion, and the opportunity space presents
for greater human exploration.
Industrials – The Individual Revolution

Within industrials, 3D printing and gene editing equipment drive the Individual Revolution.
 3D printing offers a new paradigm for engineering design and manufacturing. 3D

printing, also known as additive manufacturing, is a process in which materials are
constructed under computer control to create three-dimensional objects. The process
features machines laying horizontal cross‐sections of versatile metals or other raw
materials layer‐by‐layer by following digital blueprints drawn using computer‐aided
design (CAD) software. The benefits of 3D printing are myriad; it speeds up the design-
build-test cycle by providing product engineers rapid prototyping capabilities so they can
quickly gauge the viability of a product and incorporate design changes; it enables the
production of customized components at reduced cost and time; it reduces long supply
chains, manufacturing footprint, and waste; and it reduces the cost, effort, and skill
barriers to produce complex parts.
 Therapeutic applications using gene editing equipment could offer unique opportunities
to prevent and treat human disease. Gene editing is the ability to edit the molecular code
of life (either DNA or RNA). Gene editing tools such as TALENs, and Zinc-Finger Nucleases,
have been around for some time, but it was the discovery of the CRISPR/Cas9 system that
truly revolutionized the field. CRISPR is exciting due to its high level of on target specificity,
high level of editing efficiency, and versatility. As a technology, the ability to alter a gene
in a living cell offers many potential benefits, including treating inherited diseases,
understanding what specific genes do, generating more resilient crops and even detecting
species in the environment. The technology is still young, but as the field understands
more about how best to use these molecular tools, and improves upon their safety and
efficacy, we expect the future of these treatments will be for indications that are more
common.
Industrials – Artificial Intelligence Activated

The use of artificial intelligence and connected devices has a number of direct applications for
the Industrial sector. While in many cases industrial companies will still be producing a good,
artificial intelligence and connected devices can bring higher margin services oriented revenue
streams to the sector. Furthermore, the use of Big Data and advanced predictive analytics can
be used to deliver valuable new insights to management, employees, or suppliers who can
then make smarter, faster, and more informed business decisions.
 While a lot of focus has been on the electrification of vehicles, we see a larger potential
change in connected, software enabled vehicles. In our view, software-enabled vehicles
can drive a better, more personalized experience for customers. For example, a vehicle
could become an updatable device, much like smartphones today. On the other hand,
from an automaker perspective, this enables a shift from selling units to being able to sell
more SaaS like, recurring revenue, higher margin services. Additionally, having access to
an increasing amount of data can unlock new revenue streams for traditional automakers
in other industries, such as the insurance space.
 The freed up time a passenger gains from autonomous vehicles could lead to new
sources of revenues. Autonomous vehicles will process incredible amounts of data about
the environment and the consumer. However, autonomous vehicles can also free up time
as there is no longer a driver that needs to pay attention to the road. This could increase
work productivity, but in many instances, this could mean an emerging opportunity for
media (ads, entertainment, communication, etc.). The onus of course will be on figuring
out the right data and thinking of ways to monetize this information.
 Building the factories of the future. The scaling potential of changes to manufacturing
with the arrival of Industry 4.0 and the industrial Internet of Things is a large opportunity.
We believe this can move well beyond “smart” manufacturing to complete end-to-end
connectivity across the supply chain allowing for significantly richer information and
flexibility. If we think about the number of IoT devices in factories and throughout the
supply chain, it is possible that manufacturing can be on the same cusp of scaling that the
Internet saw when it scaled as devices moved from mainframes to computers to
smartphones.
 Recent supply bottlenecks, logistical issues, and factory downtime issues have
highlighted the need to strengthen supply chains. Artificial Intelligence, robotics, and
predictive analytics can help supply chains run more efficiently. While this will require
some investment, it is not hard to imagine that the payback can be quick given
productivity, reduced operation costs in logistics, labor, and materials, as well as working
capital efficiencies.
 Unmanned A&D technology wave of the future: The marriage of artificial intelligence (AI)
and unmanned technology is opening up new opportunities while creating new
challenges. One example of this is the opportunity to use drones as loyal wingman in
support of manned aircraft. There are several programs today looking to incorporate
drones into missions in support of manned aircraft, especially fighter aircraft. A second
example involves swarming technology.

Industrials – Hybrid Living

As individuals spend more time in their homes, both for work and leisure, the concept of the
“home as a hub” will only grow in prominence. With this, we expect material changes in
consumption patterns (e.g. how much power is used, when it is used, and how it is used). This
will require an accelerated adoption of distribution generation, and Industrial companies will
play a critical role in facilitating this transition (think residential and grid infrastructure build
out). This does not require new or revolutionary solutions, but rather in general just more of
the existing technology. As such the sector is well positioned to deliver on this demand, with
many in our coverage already being leaders in grid infrastructure and electrical equipment.
 Hybrid living will require flexible power solutions, metering and control systems. This is
incremental to existing drivers such as residential power generation (e.g. solar panels) and
electric vehicle infrastructure. Industrial companies operate actively in each of these
areas.
 The counter point is that lower commercial infrastructure may be needed meaning fewer
office buildings, so fewer lifts, fewer electrical connections, less HVAC etc. However, if the
evolution is more hybrid and office and workplace based infrastructure is maintained, the
net impact would seem to be more infrastructure than before and we expect this to be
the continuing trend.
 As this build out of infrastructure occurs, it will require continued datacenter growth as
well (continuing the strong trends seen over the last decade). Supporting this growth will
require significant development and innovation from Industrial electrical infrastructure
and HVAC solutions companies.
 Regardless of what exact level of hybrid becomes the norm, we see the shift as
accelerating the need for a more intelligent grid and as leaders in software automation
for industrial and electrical applications our companies will be at the forefront of this
implementation.
Industrials – The Great Balancing Act

The growing number of socioeconomic disparities and geopolitical skirmishes pose unique
threats across the global manufacturing landscape. But with challenges comes opportunities,
and the industrial sector is also acutely positioned to spearhead many of these externalities.
For instance, the industrial sector is addressing the energy transition through efficient flow
control solutions for hydrogen and carbon capture. A reduction of global CO2 emissions to
combat climate change is being addressed through electric vehicles, more efficient HVAC
systems, and even the use of “waste fuel.” Importantly, water scarcity and security has room
for improvement through the deployment of smart water systems. That said, the impact that
COVID-19 has had on industrial supply chains has also caused a paradigm shift in how these
industrial companies operate, from where they operate to how they manage their supply
chain. Going forward, we could see a greater shift towards “in-region for-region”
manufacturing footprints, with localized supply chains that hold more buffer stock in case of
unforeseen disruptions.
 The global push towards auto electrification is a positive for CO2 emission, but battery
supply remains a potential risk to adoption. The push for electrification and a key driver
of battery electric vehicle (BEV) sales thus far has unsurprisingly been regulatory
measures. In the U.S., President Biden has stated a 40–50% BEV goal by 2030. In Europe,
under the “Fit for 55” program, they are targeting a 55% reduction in CO2 from 2021 levels
and 100% by 2035. Likewise, China has supported the “new energy vehicle” market with
subsidies. Perhaps one of the biggest risks to BEV adoption is battery supply and there is
significant investment needed to increase production capacity.
 Water scarcity and security issues are growing at an alarming rate, but solutions such as
smart water and desalination are spearheading the global challenges. The troubling
collective impact of population growth, industrialization, pollution, climate change, and
an overall lack of water stewardship poses a palpable threat to the planet’s relatively fixed
supply of fresh water. Smart water networks use connected devices/sensors, the Internet
of Things, and information technology to help municipalities improve their monitoring and
diagnostics capacities, optimize investment dollars, ensure proper stewardship of
watersheds and infrastructure, and serve their communities more effectively.
 Advances in “waste fuel” can play an important role in the energy transition. “Waste
fuel” is commonly described as the second-derivative fuel by-products created by the
treatment of waste that is disposed of at landfills. Right now, the primary source of fuel
from generated waste comes from landfill gas, which is most commonly converted into
renewable natural gas (RNG). For the waste majors, perhaps the most obvious near-term
use case is to have the landfill gas converted to RNG to fuel waste collection vehicles,
creating a closed-loop feedback system. In our view, the waste majors are at the center of
the evolving energy transition and have a crucial role to play going forward.
 The COVID-19 shock to global supply chains are making manufacturers re-evaluate the
merits of just-in-time inventory. The COVID-driven supply chain disruptions in 2020 and
2021 exposed the risks of just-in-time inventory and long global supply chains. New
technologies help improve the resiliency of supply chains, where improved visibility to
potential disruptions allows companies to make adjustments before experiencing
shortages and help mitigate a domino effect of shortages throughout the supply chain.
 COVID-19 shutdown orders and elevated freight costs could push manufacturers to
localize manufacturing. COVID-19 has brought the risks around global supply chains more
into focus as companies have considered the reliability of supply if they are over
dependent on one country or region, and also now transport costs. Given the advances in
industrial automation, we believe that the affordability equation is more balanced now
today vs. historically using low-cost emerging markets to manufacture.


Materials and Mining – The Quest for Immortality
The implications for the Materials sector from The Quest for Immortality appear to be tertiary
at first. However, there are many positive implications that will come from longer lives, shifting
demographics and especially for emerging and frontier economies. Over time, healthier
populations, living for longer could help to provide the building blocks for another long-term
supercycle for mining, and longer-term demand growth for materials including uranium,
fertilizers, forest products, packaging and specialty chemicals, which we discuss further below.
Throughout the world, healthier lives should translate into a pickup in productivity and
increase life expectancies, particularly in emerging markets.
 Longer lives will strengthen demand outlook. The impact on the mining sector from
longer lifespans will likely act as another stress on the already strong demand outlook for
metals, especially the ones critical for decarbonization. The potential for a population
bulge to emerge in the 2030s (as death rates start to slow vs. birth rates) could have
important demographic implications for demand. More people, living healthier and
longer, will drive a need for more fixed infrastructure (housing, schools, hospitals),
increasing demand for building materials like steel, lumber and coatings. Meeting
increased energy demand from a growing population while achieving net zero carbon
targets will likely require maintaining and growing global nuclear capacity, which should
support long-term uranium demand.
 Demand for more and better quality food will continue to rise, supporting demand for
fertilizers. Fertilizers have contributed to about half of the global improvement in crop
production over the past century, and we expect demand to increase as people live longer
lives and living standards improve around the globe.
 With greater focus on health and nutrition, we believe specialty chemicals will become
more essential to the development of medicine and vitamins. One example of this is
probiotics demand in Asia, which we believe could continue to grow high single digits
through the next five years. Increased demand for medical products would also translate
to increased demand for medical plastic packaging materials, and commodity chemicals
are used as building blocks for surgical equipment and medical products.
 I need to see a doctor, quick! Advancements in mNRA vaccines and the adoption of
telemedicine are likely to assist with the health related challenges for miners in remote
countries. Mining industry giants BHP and Rio Tinto have both recently acknowledged that
future growth will necessarily come from more remote, frontier countries as the industry
tries to solve decarbonization’s demand challenges. Improved medical access could help
to smooth this transition and increase the quality of life for mineworkers.
Materials and Mining – The Individual Revolution

We believe the individual revolution could drive greater impact on ESG related topics for the
Materials sector, as increased use of personal data sheds light on individual consumption
patterns, and as individuals use social media to voice opinions on ESG issues, ultimately
influencing corporate action on these issues.
 As companies incorporate more data into their supply chains, we think that consumers
are likely to become more conscious of their consumption habits. Similar to how
consumers are able to buy carbon offsets to cover carbon emissions during travel, we
could see a future where consumers are provided the option to buy carbon offsets to
cover the construction of their homes, use of other paper & packaging and chemicals
products. We think that consumers are likely to care more about how products are
sourced, so tracing products to the root will be key. Premiums are likely to emerge for
metals that are produced with zero carbon footprints. For dissolving pulp producers, we
think that ensuring products are sustainably sourced and third-party certified will be
necessary to supply major clothing brands.
 Social media will continue to allow individuals to voice their opinions on ESG issues
relevant to the Materials sector. For example, as social media helped bring greater focus
on sustainability and minimizing plastic waste, we have seen chemical companies shift
focus towards recycling and setting forth aggressive ESG agendas. Over the last several
years, we have seen this most profoundly in the shift away from plastic and glass and into
aluminum cans, which are infinitely recyclable, and we expect new product and product
conversion will continue to opt for aluminum food and beverage packaging. We think
plastic packaging manufactures will continue to invest in R&D to make their PET based
packaging products more sustainable.
Materials and Mining – Artificial Intelligence Activated

Advances in AI, quantum computing, and big data could revolutionize mining, especially
considering the low base, and improve efficiency across the Materials sector. Even with all of
the technological help we can get, however, there is no silver bullet that will solve humanity’s
growing supply problems.
 Big benefits from AI implementation; It’s already here but set to have exponential
impacts. Mining is perceived as being old economy, however with the emergence and
implementation of artificial intelligence, the industry is on the cusp of rapid change. At its
core, mining remains a business of uncertainty and imperfect information; AI and big data
could alleviate some of the industry’s traditional challenges. AI-enabled understanding of
orebodies should drive improved sequencing and planning with far less variance and an
ability to see further into the mines’ future at less cost and effort. Finding the orebodies
will become easier with historical data and machine learning refining targets before they
are drilled. Processing plants will have automated control systems that will use terrabytes
of data to real-time optimize recoveries. The amount of water and power consumption
will be reduced. The mines will be safer with data providing more understanding of
dangers (and as automation further reduces human interactions in the process). New
advanced reactor designs may employ increased automation to improve efficiency and
reduce the significant labor requirements of current reactor designs; as a result, nuclear
energy costs may decline and become more competitive with other energy alternatives,
which in turn could drive uranium demand.
 Genie in a bottle? There is a clear challenge that the world is set to face in accumulating
enough metal to drive decarbonization. Will the use of technology on the supply side be
enough to offset the rapidly growing demand for metal? No, most likely not. With AI
proliferation likely a decade out, (into what should generally be mid-term deficits across
multiple commodities) we think we are still likely to face tight metals markets, at least for
the next 10 years.
 Artificial intelligence and machine learning may be the key to unlocking precision
agriculture’s full potential to sustainably grow increasing amounts of food while also
using fertilizers and crop chemicals more efficiently and selectively. Precision agriculture
has been increasingly adopted over the past two decades in developed regions, allowing
for more efficient use of fertilizers while at the same time increasing crop yields, a trend
we expect to continue.
 We also see artificial intelligence being incorporated throughout the production process
for timberlands, wood products, pulp, paper, and packaging products. Initially, AI can be
used to automate more parts of the production process as employers face intermittent
labor shortages. AI could also be used to more efficiently manage timberlands and
increase productivity.
 We believe AI along with the general secular growth in digitization will be important
growth drivers for specialty chemicals. We believe AI and digitization will require
enhanced networks, next generation chipsets, and more sophisticated technology,
requiring greater demand for specialty chemicals that could enable higher per unit
chemistry value. AI will allow for targeted advertising when it comes to paint colors based
on age, demographic and geographical location, and should improve the way
homebuilders purchase and use coatings while on the job site, mostly beneficial to the
manufacture and logistics processes, improving efficiency and reducing waste.
Materials and Mining – Hybrid living

A virtual world should start to shift some key paradigms that will liberate the Materials sector,
at least to a greater extent, from its historical physical bounds. Changes will take some time
but directionally, the implications from augmented and virtual reality have the potential to
substantially change the industries and business models from within.
 Bringing the mine to the comfort of your own home. We believe the mining sector has
generally overcome reduced workforce availability through COVID-19, which bodes well for
future trends in remote working, likely to be accelerated by augmented/virtual reality in the
future. The most obvious benefit of augmented or virtual reality is that it can remove some
(and maybe one day most, or all) humans from potentially dangerous environments. As Rio
Tinto has demonstrated in the Pilbara, where it has fully automated mines and rail run via an
ops center in Perth, operations can be run effectively remotely. Furthermore, the ability for
international consultants and engineers to spend time virtually at a mine site, for example,
should enable more rapid problem solving and increase general productivity.
 Unintended consequences may make communities more hostile. As these trends continue,
fewer people will live in close proximity to mines, which could (over time) be run from
thousands of miles away. This would reduce the impact from the “mining economy” that
usually bolsters regional economic development. This may leave local communities with less
upside, but all of the negative environmental issues that come from mining, which will need
to be proactively managed by the industry.
 Similarly, many roles within the Forest Products industry could one day be performed
through augmented reality from the comfort of one’s home. Manufacturing roles are
generally remote, often relatively uncomfortable (loud, hot, etc.), and more dangerous than a
standard office job. Augmented reality could help companies address ongoing recruitment
challenges while increasing safety.
 For the packaging industry, as we become more a mobile workforce (i.e. work from
anywhere that has an internet connection) we will have a greater need for packaged
products that can move with us. Therefore, we expect sustainable packaging substrates such
an aluminum to innovate products such as re-sealable water bottles (similar to easily
transportable plastic water bottles).
 For the chemicals industry, we believe a hybrid environment means new technological
advancements that require more enhanced chemical products. For example, hybrid living will
require advanced telecom infrastructure to support this hybrid environment, which could see
a revamp of new innovations in the chemicals industry to support electronics end-markets.
The coatings industry will be a direct beneficiary of augmented and virtual reality, as
consumers will be able to virtually test a color on their walls, and customize their color choices
when it comes to automobiles, homes and other electric products.

Materials and Mining – The Great Balancing Act

Bifurcated supply chains, limited critical metals supply capacity and new frontiers for metals
production will create substantial complication and risk around our ability to decarbonize.
Copper and the ubiquitous nature of its use, about to be supercharged by electrification, is set
for deficits and it is not apparent at this time as to whether this can even be avoided. Across
the Materials sector, the positives from ESG may need to evolve in order to continue to
progress the key challenges facing the sector.
 There is no easy answer to metals supply challenges. It is becoming increasingly apparent that
the shift towards decarbonization will create disconnects between supply and demand across
multiple mined commodities. Spiking demand will pressure underlying capacity for metals like
nickel, cobalt, lithium and rare earths, while declining grades and depleting resource bases at
mines will affect the supply side for other metals like copper. Increased focus on
environmental impact, although a net positive, is hampering the ability for mining companies
to gain new permits and/or maintain production rates. Higher prices, and substitution, are the
likely eventual outcome but this will come at a cost to society, both economic and potentially
by slowing the pace of decarbonization if we indeed reach a point where metals supply
capacity is exhausted. Recycling tailings dumps and other less emissions intense metals
production is also likely to grow in importance.
 Looking beyond metals, materials supply chains will need to improve and become more
robust. For example, creating coatings is a raw material intensive process, and given almost
everything we interact with has some sort of coatings on it; the global community will need to
have these raw materials readily available around the world.
 ESG’s evolution. While the goals of ESG are clearly positive, the externalities from this mega-
trend will need to be managed. The aversion to coal and oil has incentivized companies to
slow/stop investment, which in theory speeds up decarbonization. However, this is now
creating energy shortfalls, leading to higher inflation and potential for political discord; both
of which are forces that could reduce the capacity and propensity for the world to cooperate
on climate change. Divestments, at the margin, are increasing the carbon generated by these
assets as lives are extended and as new owners look to expand production. The reality that
certain metals are critical to decarbonization will likely drive change in the way that ESG is
applied to the mining sector over time. Furthermore, while protecting forests does store
carbon, reducing the production of wood products could result in the increased use of more
carbon intensive and non-renewable materials such as concrete and steel, so attempts to
preserve forests for their stored carbon value could backfire.
 Uranium – balancing benefits and risks of nuclear energy. Many countries have incorporated
nuclear as a critical part of their overall energy mix and consider nuclear as a clean and
sustainable energy source that is key to meeting climate goals. However, opponents cite the
potential risk from nuclear accidents, challenges with nuclear waste disposal, and proliferation
concerns. The nuclear industry will need to carefully balance competing dynamics, especially
safe reactor operations.
 Improved agronomic practices and advanced technologies will be needed to ensure
fertilizers are used sustainably. Fertilizers are required to meet rising food demand, but
growers will need to balance the need to increase crop yields with the increasing awareness
of farming’s impact on our environment.
 In the packaging industry, The Great Balancing Act will be selecting which products need to
be packaged in less sustainable substrates due to their superior infection prevention
capabilities, such as a medical supplies/medicine, which will likely continue to use PET. In
addition, consumers still prefer less sustainable packaging for specific goods; therefore it will
be up to the consumer to do their part in recycling waste, and companies/governments can
invest in recycling facilities to make them more economical. These choices must be balanced

against energy consumption, carbon footprint, pollution and waste, cost, and standard of
living.
 The new strategic front for critical minerals. Countries like the DRC, with ample and relatively
untouched high-grade deposits of copper and cobalt, have already become a hot spot in the
growing geopolitical rivalry between China and the United States. The dominance of China in
many metals, and a burgeoning requirement for the West to create supply chains of its own,
combined with these metals occurring in many non-traditional resource countries, often with
security and governance issues, will make the geopolitics of critical minerals rise in importance
over the coming decade.
 As climate change becomes more pronounced, we think forests will increasingly be viewed
as a national asset due to their ability to absorb and store carbon. For wealthy nations, this
may result in more forests becoming protected (e.g., the Canadian province of British
Columbia is proposing protecting 2.6 million hectares of old-growth forests). For developing
nations, protecting forests may come at the cost of slowed development; therefore, we think
that wealthy nations are likely to pay developing nations to preserve forested areas.
 Sourcing commodity chemicals could become an important issue, as a key component for
the manufacturing industry. We saw a glimpse of this when the U.S. and China enacted trade
tariffs on various commodities ranging from plastics to Ag products. We believe this event
helped China to become more self-sufficient in producing its own chemicals and the U.S. to
become more open to manufacturing domestically.

Real Estate
Real Estate – The Quest for Immortality
The life science REITs are key partners to top life science companies, and help create
collaborative ecosystems that drive greater innovation. Biotechnology companies are
constantly searching for ways to facilitate collaboration among stakeholders to advance
research. Therefore, these companies elect to reside in certain markets, and even more
specifically, within certain asset clusters.
 Lab tenants prefer to reside in top clusters: The life science cluster markets are highly
collaborative ecosystems that help drive greater innovation, and in turn, advance life
science research at a quicker pace. Big pharma historically owned one-off facilities, but
realized the benefits of clustering, and moved research efforts to leased buildings in top
markets. Top clusters generally have leading research institutions (create partnerships &
talent pools) and high quality healthcare systems with a teaching slant.
 Biotech boom driving life science real estate boom. The pace of drug development should
accelerate given an uptick in R&D funding along with key technological advancements.
The COVID-19 pandemic highlighted meaningful technology advancements (MRNA
vaccines) and the importance of medical research. This has also led to increased funding
both from a variety of private capital sources (IPOs, follow-ons, VC) to fund advanced
research and public sources (NIH) to fund basic research.
 Manufacturing next real estate demand driver: New complex drugs such as biologics
(large molecule) are much more complex to produce as compared to traditional small
molecule drugs. The development of biologic treatment options depends on cultures of
living cells and viruses that require particular environments to grow and remain viable.
Establishing this manufacturing process, particularly in the beginning phases, needs to be
overseen by PHD/MD individuals that were involved in the research and development
process. Therefore, the sites need to be located near major cluster markets.
Real Estate – The Individual Revolution

Customized homes for one and all: A manufactured home created today looks very different
than a mobile home looked 30 years ago, with modern homes looking increasingly similar to
traditional custom built single-family homes. We expect that this trend will continue over time,
and that eventually there will be few signs of a difference between the styles. We also think
that the application of new technologies, like 3D printing, could keep manufactured home
prices affordable despite increasing raw materials costs. In our view, the primary differences
between traditional and manufactured homes will eventually be just price and the available
level of customization.
Real Estate – Artificial Intelligence Activated

Big data and AI trends will impact the sector in a variety of ways including driving incremental
data center demand to store data, helping REITs streamline select investments/operating
strategies, and requiring developers to build properties with unique features to facilitate
greater automation. The economy’s reliance on big data is driving accelerating demand for
data centers to store data. Select real estate companies such as PLD and WELL have been more
aggressive building out their respective data initiatives to better identify investment
opportunities and operating strategies. These companies have heavily invested in their
respective data initiatives to track data within their own portfolios and obtain data from other
sources to better understand the overall market dynamics. Additionally, developers could be
required to build properties with unique features to help tenants utilize automation
technology. For example, industrial tenants that are employing more automation would prefer

to have higher clear heights as the automated pickers are able to use the extra vertical space
more efficiently.
Real Estate – Hybrid Living

In terms of what it means for real estate, the need for housing is likely to grow at least as fast
as populations in our view. We believe the temporary “race for space” during COVID-19
lockdowns is likely to be a slow, but steady long-term trend as people do more at home, only
partially offset by less need to store as many physical possessions in a digital world. Similarly,
more affordable (and thus often less accessible) locations could well increasingly gain favor
(assuming digital connectivity is sufficient), potentially reversing some of the dominant
urbanization trends of recent decades. Even concerns about greater difficulties in the delivery
of physical goods becomes less relevant if 3D printers become commonplace. Likewise services
if augmented and virtual reality improve. Headwinds are likely to vary, but be greater for some
of the other subsectors:
 Retail property: the impacts of retailers needing less physical retail space are already
clearly evident, though how much less and the best format is still unclear. Conversion to
residential is an option, but often with relatively unattractive economics.
 Offices: we expect employers to find solutions to issues such as less collaboration, training
junior staff and culture creation as augmented and virtual reality continue to become
more user friendly, greatly reducing their need for office space. The bigger question is the
timing and pace of such change.
 Logistics: the overall headwinds appear less significant, unless one takes into account 3D
printing becoming commonplace. However, owning the right type of warehouses in the
right locations on the right economic terms may prove challenging. The exceptionally high
prices currently paid in some leading global cities don’t factor in the potential for a
reversal in their population trends in our view.
 Self-storage: Fewer possessions in a more digital world risks a gradual decline in demand
for self-storage space in the long-term. Likewise less need to move houses with jobs in a
work-from-home world would reduce another source of demand to use such space.
However, most important will be the shift in where their customers live as proximity has
typically been a key driver of customers’ decisions.
 Healthcare: Demographics in most countries point to a tailwind in tenant demand.
Furthermore, while some services will increasingly be provided remotely, most appear
likely to continue to require attending in person. We also believe the issues around
populations shifting to new locations is less significant given the residential nature of
many properties.
 Student Housing: Given the typically young age of students, the argument for them
adopting on-line learning and avoiding the need to pay for student housing appears strong
at first sight. However, we see the appeal of using it as a first step to leaving the family
home as enduring.
Real Estate – The Great Balancing Act

Consumers expect greater product selection and faster delivery times both of which increase
the importance of logistics networks. Successful retailers are placing more value on their
logistics networks, and see it as a tool to improve the overall customer experience. These
companies are heavily investing in their real estate footprints by taking down more space to
hold more product closer to population centers. This ensures they have products when needed
and can deliver them quickly.

 Global supply chains are more exposed to macroeconomic shocks. Supply chains today are
more interconnected across the globe, and consequently, are more exposed to disruptions.
Given several recent macro disruptions (BREXIT, trade wars, pandemic), stakeholders are
forced to diversify production locations where possible, and increase overall inventory levels
to better navigate the inevitable production/transportation issues.
 Real estate design and locations matter. It is vital for retailers and logistics companies to
operate warehouses close to population centers to decrease delivery times. It is also
increasingly more difficult to find these locations as there is generally a higher and better
use other than industrial. This could result in real estate companies being more creative
developing multi-story industrial product in order to justify paying up for the underlying
land. Given cost constraints, the higher inventory levels will need to be held in facilities
just outside the city. We see these buildings being built bigger with higher clear heights
and equipped with more automated technology to better utilize the vertical space and
reduce labor needs.

Technology, Internet, Media and Telecommunications

TIMT – The Quest for Immortality
Within “The Quest for Immortality,” telemedicine and rural broadband connectivity along
with AI-driven real-time monitoring has the potential to transform healthcare – one of the
largest and most important verticals across any economy accounting for almost one-fifth of
GDP in the U.S. Not only could a more decentralized distribution model have a materially
positive impact on both the quality and cost of healthcare, a highly specialized component of
the “data industrial complex” allocated to health data (along with other groundbreaking
healthcare developments) could truly mobilize significant resources at scale from treatment
to prevention ultimately compounding these quality and cost benefits.
 Telemedicine. The ability to conduct doctor visits virtually is one of the major irreversible
trends from the pandemic. According to a recent McKinsey study, telehealth usage is up
38x from pre-COVID levels. Given the positive outcomes supported by telemedicine
(better patient outcomes, greater efficiency for doctors), we expect this tailwind to
sustain and expect companies providing technology that enables telemedicine to benefit
over the longer-term.
 Accelerated drug development and more targeted drugs. With the mRNA vaccines
reaching the public in record time, we believe life sciences companies are increasingly
looking to expedite the process from ideation of drug development to getting drugs to
markets. We believe technology plays a critical role in enabling this, from automating
manual processes traditionally done during this life cycle, to better dissemination of
information, to changing the way R&D is done, with innovations like digital trials.
 Democratization of healthcare. With more digital healthcare devices being sold direct to
consumer (following the footsteps of fitness trackers), healthcare is increasingly
commoditized and the consumer has greater ability to take control of their overall long-
term wellbeing. We see room for more connected devices, including those to track
nutrition, physical activity, and sleep, as well as those that can monitor specific conditions
better than previous processes.
We would add the ability to embed AI into digital healthcare can potentially change the way
healthcare is conducted. Even with advances in telemedicine today, healthcare is still generally
1:1 and time can be a major bottleneck. We would note that 60% of patients wait two weeks
or more for a PCP appointment (source: RelyMD) and though that number is likely
meaningfully lower with telemedicine, it remains a bottleneck. We see potential to automate
routine visits through telemedicine with AI capabilities – for example, healthcare AI that can
understand common problems and narrow down next steps, so that patients in need can get
immediate treatment, versus having to wait extended periods of time to solve the problem.
TIMT – The Individual Revolution

The "Individual Revolution," while still early stages, has already had a profound impact on
the technology landscape and innovation. Today, we are seeing a rapid shift by organizations
to put the customer first and, ultimately adapt to raised customer expectations for
personalized, friendly, efficient, and reliable shopping/service experiences through their
preferred channels. In turn, we are in the midst of a wave of significant spending by
organizations on technologies that can help improve their customer experience, reach to new
channels, such as social media, and overall enable experiences that are comparable to that of
Amazon, Netflix, etc. In addition, organizations need the data center infrastructure (cloud) to
support the exponential growth of customer data and meet the new bar for customer
experience. We also point to the ongoing impacts on advertising platforms from increased
customer data privacy and protection, including GDPR, CCPA, and the deprecation of IDFA and
third-party cookies. We believe the next iteration of the Internet, now being referred to as the
"Metaverse," and a more advanced data-industrial complex will only spur more drastic change,
with technology again being what allows all organizations to adapt during the next stages of
this revolution.
The emergence of personalized platforms underpinned by a more highly evolved data-

industrial complex with sophisticated consumer data ownership, fungible portability and
enterprise-grade protections would exponentially expand the pool of anonymously and non-
anonymously aggregated consumer information – the impact of which would be nothing short
of transformative (akin to what the banking industry by facilitating the flow of capital did for
capitalism, market efficiency and the global economy). In fact, we believe that an advanced
data-industrial complex represents the single greatest “infrastructure” opportunity over the
next half century with wide-ranging economic, social, cultural, political, environmental and
national security implications.
TIMT – Artificial Intelligence Activated

AI has meaningful applications directly within technology. Longer-term concerns aside, we
expect AI to significantly improve the pace of technological advancement and make existing
technology more powerful. We do not expect any technology companies to truly productize
general purpose AI in the next five years, but instead expect “smarter” AI systems to become
embedded within all areas of technology. Over time, we believe this creates products that,
while being the same underneath, are almost custom-tailored to the end user. In software,
this creates an interesting dichotomy: with multi-tenant cloud solutions, millions of users are
using the same piece of software, but with increased AI capabilities and customization based
on user behavior, the experience could end up being so different from user-to-user that there
are ultimately millions of different user experiences for the same piece of software. We see
the same extending to consumer applications and even hardware devices (especially with the
advent of 3D printing).
The massive computing needs of AI will drive solutions for data storage, security and
sovereignty, while requiring a significant buildout of compute and storage
infrastructure. Companies are also exploring the possibilities of edge compute enabled by 5G,
which will require edge data centers and other infrastructure that allows companies, hyper-
scalers and perhaps telecom operators to manage large quantities of data.
TIMT – Hybrid Living

COVID-19 has given rise to a massive number of technologies, platforms, and services that
serve to enable Hybrid Living. With video conferencing, broader availability of high-speed
internet, co-working spaces, and less reliance on pen-and-paper, we believe a significant
portion of the population is increasingly shifting to a style of living and working that is tethered
less by proximity to the workplace. Similar to how public transportation and internal
combustion engines gave rise to the suburb, we believe modern technologies will further shift
the future workforce and populations to be even more distributed across regions and even
countries. Further, entertainment and living platforms/services such as food/grocery delivery
and OTT will, in our view, accelerate the flight from more dense urban populations.
One unifying theme from media history is humanity’s innate quest to transcend time and space
(and our interaction therein). While clearly humanity is far from being done transcending
“physical time and space,” we do expect a notable acceleration in the human transcendence
of “digital time and space,” which today is characterized by a substantially more advanced and
extensive technology stack capable of supporting the emergence of personalized platforms
within the confines of the Metaverse. With VR/AR/MR and AI, a new era of mediated reality

and mediated intelligence could be ushered in that could begin to rival that of, and in some
instances substitute for, the real world. In fact, within a few generations, we believe nobody
will be without their own avatar(s) in at least one virtual world.
TIMT – The Great Balancing Act

There is an ongoing "balancing act" across social, political, and environmental topics.
Technology, and especially software, are often at the center of socio-political issues, such as
is the case with cyber-warfare counter-balanced by investment in cybersecurity software.
Software also plays an important role in sustainability efforts — we would highlight two
names: 1) Microsoft Cloud for Sustainability, a SaaS platform for helping orgs keep record of,
report on, and reduce their carbon footprint; and 2) DocuSign, whose eSignature technology
has saved 20B+ pieces of paper and preserved over 2.5 million trees. All in all, some of the
largest companies in the world are technology companies and they can play a crucial role in
neutralizing some of the tension across these issues given their global footprint and influence.
A tipping point in human mobility? One question that strikes us with all the technology
enhancements is the extent to which humanity is becoming “less mobile” as we spend more
of our time immersed in a variety of interactive digital environments consuming digital media.
If true and human mobility is reaching a tipping point within a few generations and set to
decline for the first time in human history, we challenge readers to contemplate this outcome
and the vast potential economic, social, cultural, political, environmental and national security
implications. Whether it is healthcare, real estate, industrials, IT, communication services,
energy and utilities, materials or discretionary, we believe the impact of any meaningful
physical-to-digital transition on the re-allocation of global resources and re-ordering of the
global economy would be nothing short of profound.

Contributing Authors
RBC Capital Markets, LLC
Brian Abrahams (Analyst) (212) 858-7066 [email protected]
Jon G. Arfstrom (Associate Director of U.S. Research) (612) 373-1785 [email protected]
Jonathan Atkin (Analyst) (415) 633-8589 [email protected]
Dan Bergstrom (Analyst) (612) 313-1254 [email protected]
Christopher Carril (Analyst) (617) 725-2109 [email protected]
Michael Carroll (Analyst) (440) 715-2649 [email protected]
Gerard Cassidy (Analyst) (207) 780-1554 [email protected]
Mike Dahl (Analyst) (212) 618-3251 [email protected]
Sean Dodge (Analyst) (615) 372-1322 [email protected]
Deane Dray (Analyst) (212) 428-6465 [email protected]
Steven Duong (Analyst) (207) 780-1554 [email protected]
Mark A. Dwelle (Analyst) (804) 782-4008 [email protected]
Brad Erickson (Analyst) (503) 830-9488 [email protected]
Scott Hanold (Analyst) (512) 708-6354 [email protected]
Matthew Hedberg (Analyst) (612) 313-1293 [email protected]
Brad Heffern (Analyst) (512) 708-6311 [email protected]
Ken Herbert (Analyst) (415) 633-8583 [email protected]
Luca Issi (Analyst) (212) 266-4089 [email protected]
Rishi Jaluria (Analyst) (415) 633-8798 [email protected]
Kenneth S. Lee (Analyst) (212) 905-5995 [email protected]
Bora Lee (Analyst) (212) 618-7823 [email protected]
Kennen MacKay (Analyst) (415) 633-8568 [email protected]
Kutgun Maral (Analyst) (212) 437-9151 [email protected]
Nik Modi (Analyst) (212) 905-5993 [email protected]
Frank G. Morgan (Analyst) (615) 372-1331 [email protected]
Daniel R. Perlin (Analyst) (410) 625-6130 [email protected]
Gregory Renza (Analyst) (212) 858-7065 [email protected]
Ashish Sabadra (Analyst) (415) 633-8659 [email protected]
TJ Schultz (Analyst) (512) 708-6385 [email protected]
Elvira Scotto (Analyst) (212) 905-5957 [email protected]
Steven Shemesh (Analyst) (212) 428-2390 [email protected]
Shagun Singh (Analyst) (646) 618-6886 [email protected]
Joseph Spak (Analyst) (212) 428-2364 [email protected]
Matthew Swanson (Analyst) (612) 313-1237 [email protected]
Shelby Tucker (Analyst) (212) 428-6462 [email protected]
Arun Viswanathan (Analyst) (212) 301-1611 [email protected]

RBC Europe Limited

Gordon Aitken (Analyst) +44 20 7002 2633 [email protected]
Saravana Bala (Analyst) +44 20 7002 2616 [email protected]
Ben Bathurst (Analyst) +44 20 7429 8910 [email protected]
Biraj Borkhataria (Associate Director of European Research) +44 7713 388 825 [email protected]
Tyler Broda (Analyst) +44 20 7653 4866 [email protected]
Andrew Brooke (Analyst) +44 20 7002 2262 [email protected]
Richard Chamberlain (Analyst) +44 20 7429 8092 [email protected]
Ruairi Cullinane (Analyst) +44 773 864 8175 [email protected]
Piral Dadhania (Analyst) +44 20 7429 8644 [email protected]
Manjari Dhar (Analyst) +44 20 7002 2111 [email protected]
James Edwardes Jones (Analyst) +44 20 7002 2101 [email protected]
Mark Fielding (Analyst) +44 20 7002 2128 [email protected]
Fernando Garcia (Analyst) +44 20 7029 0267 [email protected]
Karl Green (Analyst) +44 20 7429 8837 [email protected]
Nick Housden (Analyst) +44 20 7429 8831 [email protected]
Mandeep Jagpal (Analyst) +44 20 7002 2817 [email protected]
Zoe Karamanoli (Analyst) +44 20 7429 8978 [email protected]
Erwan Kerouredan (Analyst) +44 20 7029 0855 [email protected]
Sebastian Kuenne (Analyst) +44 20 7429 8932 [email protected]
Emma Letheren (Analyst) +44 20 7002 2100 [email protected]
Julian Livingston-Booth (Analyst) +44 20 7002 2790 [email protected]
Sherri Malek (Analyst) +44 20 7653 4510 [email protected]
John Musk (Analyst) +44 20 7029 0856 [email protected]
Tom Narayan (Analyst) +44 20 7429 8594 [email protected]
Anke Reingen (Analyst) +44 20 7029 0784 [email protected]
Jack Reynolds-Clark (Analyst) +44 20 74 298877 [email protected]
Al Stanton (Analyst) +44 207 029 0853 [email protected]
Benjamin Toms (Analyst) +44 20 7002 2258 [email protected]
Wassachon Udomsilpa (Analyst) +44 20 7029 0783 [email protected]
Charles Weston (Analyst) +44 20 7429 8425 [email protected]
Alexander Wheeler (Analyst) +44 20 7653 4481 [email protected]
Anthony Yang (Analyst) +44 20 7002 2858 [email protected]
Christine Zhou (Analyst) +44 20 7002 2617 [email protected]

RBC Dominion Securities Inc.

Pammi Bir (Analyst) (416) 842-7805 [email protected]
Maurice Choy (Analyst) (604) 257-7632 [email protected]
Sam Crittenden (Analyst) (416) 842-7886 [email protected]
Luke Davis (Analyst) (403) 299-5042 [email protected]
Michael Harvey (Analyst) (403) 299-6998 [email protected]
Alexander Jackson (Analyst) (416) 842-6140 [email protected]
Sabahat Khan (Analyst) (416) 842-7880 [email protected]
Robert Kwan (Analyst) (604) 257-7611 [email protected]
Geoffrey Kwan (Analyst) (604) 257-7195 [email protected]
Wayne Lam (Analyst) (416) 842-7840 [email protected]
Matt Logan (Analyst) (416) 842-3770 [email protected]
Keith Mackey (Analyst) (403) 299-6958 [email protected]
Matthew McKellar (Analyst) (604) 257-7064 [email protected]
Drew McReynolds (Analyst) (416) 842-3805 [email protected]
Douglas Miehm (Analyst) (416) 842-7823 [email protected]
Darko Mihelic (Analyst) (416) 842-4128 [email protected]
Irene Nattel (Analyst) (514) 878-7262 [email protected]
Nelson Ng (Analyst) (604) 257-7617 [email protected]
Greg Pardy (Head of Global Energy Research) (416) 842-7848 [email protected]
Paul C. Quinn (Analyst) (604) 257-7048 [email protected]
Scott Robertson (Analyst) (604) 257-7662 [email protected]
Michael Siperco (Analyst) (416) 842-3804 [email protected]
Walter Spracklin (Analyst) (416) 842-7877 [email protected]
Paul Treiber (Analyst) (416) 842-7811 [email protected]
Josh Wolfson (Analyst) (416) 842-9893 [email protected]
Andrew D. Wong (Analyst) (416) 842-7830 [email protected]
Royal Bank of Canada - Sydney Branch

Alexander Barkley (Analyst) +61 2 9033 3068 [email protected]
Owen Birrell (Analyst) +61 3 8688 6519 [email protected]
Kaan Peker (Analyst) +61 2 9033 3040 [email protected]
Gordon Ramsay (Analyst) +61 3 8688 6578 [email protected]
Chami Ratnapala (Analyst) +61 2 9033 3017 [email protected]
Garry Sherriff (Analyst) +61 2 9033 3022 [email protected]
Craig Wong-Pan (Analyst) +61 2 9033 3189 [email protected]

Required Equity Research Non-U.S. Analyst and Conflicts Disclosures

Non-U.S. analyst disclosure
One or more research analysts involved in the preparation of this report (i) may not be registered/qualified as research analysts
with the NYSE and/or FINRA and (ii) may not be associated persons of the RBC Capital Markets, LLC and therefore may not be
subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities
held by a research analyst account.
Conflicts disclosures
This product constitutes a compendium report (covers six or more subject companies). As such, RBC Capital Markets chooses to
provide specific disclosures for the subject companies by reference. To access conflict of interest and other disclosures for the
subject companies, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.aspx?entityId=1.
These disclosures are also available by sending a written request to RBC Capital Markets Research Publishing, P.O. Box 50, 200
Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7 or an email to [email protected].
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including
total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated
by investment banking activities of the member companies of RBC Capital Markets and its affiliates.
Distribution of ratings
For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories
- Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Outperform
(O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings
are not the same because our ratings are determined on a relative basis.
Conflicts policy
RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request.
To access our current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf or send a request to RBC
Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario
M5J 2W7. We reserve the right to amend or supplement this policy at any time.
With regard to the MAR investment recommendation requirements in relation to relevant securities, a member company of
Royal Bank of Canada, together with its affiliates, may have a net long or short financial interest in excess of 0.5% of the total
issued share capital of the entities mentioned in the investment recommendation. Information relating to this is available upon
request from your RBC investment advisor or institutional salesperson.
Dissemination of research and short-term trade ideas

RBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having
regard to local time zones in overseas jurisdictions. RBC Capital Markets' equity research is posted to our proprietary website to
ensure eligible clients receive coverage initiations and changes in ratings, targets and opinions in a timely manner. Additional

distribution may be done by the sales personnel via email, fax, or other electronic means, or regular mail. Clients may also receive
our research via third party vendors. RBC Capital Markets also provides eligible clients with access to SPARC on the Firm’s
proprietary INSIGHT website, via email and via third-party vendors. SPARC contains market color and commentary regarding
subject companies on which the Firm currently provides equity research coverage. Research Analysts may, from time to time,
include short-term trade ideas in research reports and / or in SPARC. A short-term trade idea offers a short-term view on how a
security may trade, based on market and trading events, and the resulting trading opportunity that may be available. A short-
term trade idea may differ from the price targets and recommendations in our published research reports reflecting the research
analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons,
methodologies and/or other factors. Thus, it is possible that a subject company's common equity that is considered a long-term
'Sector Perform' or even an 'Underperform' might present a short-term buying opportunity as a result of temporary selling
pressure in the market; conversely, a subject company's common equity rated a long-term 'Outperform' could be considered
susceptible to a short-term downward price correction. Short-term trade ideas are not ratings, nor are they part of any ratings
system, and the firm generally does not intend, nor undertakes any obligation, to maintain or update short-term trade ideas.
Short-term trade ideas may not be suitable for all investors and have not been tailored to individual investor circumstances and
objectives, and investors should make their own independent decisions regarding any securities or strategies discussed herein.
Please contact your investment advisor or institutional salesperson for more information regarding RBC Capital Markets'
research.
For a list of all recommendations on the company that were disseminated during the prior 12-month period, please click on the
following link: https://rbcnew.bluematrix.com/sellside/MAR.action
The 12 month history of SPARCs can be viewed at https://www.rbcinsightresearch.com/.
Analyst certification
All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of
the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or
indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report.
Third-party-disclaimers
The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s Financial Services
LLC (“S&P”) and is licensed for use by RBC. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied
warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties
of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing,
in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special,
punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
RBC Capital Markets disclaims all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any statements made to the media
or via social media that are in turn quoted in this report, or otherwise reproduced graphically for informational purposes.
References herein to “LIBOR”, “LIBO Rate”, “L” or other LIBOR abbreviations means the London interbank offered rate as administered by ICE Benchmark Administration (or any other
person that takes over the administration of such rate).

Required Commodity Strategy and MENA Research Conflicts Disclosures

Conflicts disclosures
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including
total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated
by investment banking activities of the member companies of RBC Capital Markets and its affiliates.
Michael Tran is a member of the advisory board of Orbital Insight.
Helima Croft is a member of the board of directors of Reservoir Media, Inc. (Nasdaq: RSVR)
Conflicts policy
RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request.
To access our current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf or send a request to RBC
Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario
M5J 2W7. We reserve the right to amend or supplement this policy at any time.
With regard to the MAR investment recommendation requirements in relation to relevant securities, a member company of
Royal Bank of Canada, together with its affiliates, may have a net long or short financial interest in excess of 0.5% of the total
issued share capital of the entities mentioned in the investment recommendation. Information relating to this is available upon
request from your RBC investment advisor or institutional salesperson.
Dissemination of research and short-term trade ideas

RBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having
regard to local time zones in overseas jurisdictions. RBC Capital Markets' equity research is posted to our proprietary website to
ensure eligible clients receive coverage initiations and changes in ratings, targets and opinions in a timely manner. Additional
distribution may be done by the sales personnel via email, fax, or other electronic means, or regular mail. Clients may also receive
our research via third party vendors. RBC Capital Markets also provides eligible clients with access to SPARC on the Firm’s
proprietary INSIGHT website, via email and via third-party vendors. SPARC contains market color and commentary regarding
subject companies on which the Firm currently provides equity research coverage. Research Analysts may, from time to time,
include short-term trade ideas in research reports and / or in SPARC. A short-term trade idea offers a short-term view on how a
security may trade, based on market and trading events, and the resulting trading opportunity that may be available. A short-
term trade idea may differ from the price targets and recommendations in our published research reports reflecting the research
analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons,
methodologies and/or other factors. Thus, it is possible that a subject company's common equity that is considered a long-term
'Sector Perform' or even an 'Underperform' might present a short-term buying opportunity as a result of temporary selling
pressure in the market; conversely, a subject company's common equity rated a long-term 'Outperform' could be considered
susceptible to a short-term downward price correction. Short-term trade ideas are not ratings, nor are they part of any ratings
system, and the firm generally does not intend, nor undertakes any obligation, to maintain or update short-term trade ideas.
Short-term trade ideas may not be suitable for all investors and have not been tailored to individual investor circumstances and
objectives, and investors should make their own independent decisions regarding any securities or strategies discussed herein.
Please contact your investment advisor or institutional salesperson for more information regarding RBC Capital Markets'
research.
For a list of all recommendations on the company that were disseminated during the prior 12-month period, please click on the
following link: https://rbcnew.bluematrix.com/sellside/MAR.action
The 12 month history of SPARCs can be viewed at https://www.rbcinsightresearch.com/.

Analyst certification
All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of
the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or
indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report.
Third-party-disclaimers
RBC Capital Markets disclaims all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any statements made to the
media or via social media that are in turn quoted in this report, or otherwise reproduced graphically for informational purposes.
References herein to “LIBOR”, “LIBO Rate”, “L” or other LIBOR abbreviations means the London interbank offered rate as administered by ICE Benchmark Administration (or any other
person that takes over the administration of such rate).

Disclaimer
RBC Capital Markets is the business name used by certain branches and subsidiaries of the Royal Bank of Canada, including RBC Dominion Securities Inc., RBC Capital
Markets, LLC, RBC Europe Limited, RBC Capital Markets (Europe) GmbH, Royal Bank of Canada, Hong Kong Branch and Royal Bank of Canada, Sydney Branch. The
information contained in this report has been compiled by RBC Capital Markets from sources believed to be reliable, but no representation or warranty, express or
implied, is made by Royal Bank of Canada, RBC Capital Markets, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and
estimates contained in this report constitute RBC Capital Markets' judgement as of the date of this report, are subject to change without notice and are provided in
good faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice. This material is
prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it.
The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you
are in doubt about the suitability of such investments or services. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance
is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. RBC Capital Markets research analyst compensation
is based in part on the overall profitability of RBC Capital Markets, which includes profits attributable to investment banking revenues. Every province in Canada, state
in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to
their residents, as well as the process for doing so. As a result, the securities discussed in this report may not be eligible for sale in some jurisdictions. RBC Capital
Markets may be restricted from publishing research reports, from time to time, due to regulatory restrictions and/ or internal compliance policies. If this is the case,
the latest published research reports available to clients may not reflect recent material changes in the applicable industry and/or applicable subject companies. RBC
Capital Markets research reports are current only as of the date set forth on the research reports. This report is not, and under no circumstances should be construed
as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities
broker or dealer in that jurisdiction. To the full extent permitted by law neither RBC Capital Markets nor any of its affiliates, nor any other person, accepts any liability
whatsoever for any direct, indirect or consequential loss arising from, or in connection with, any use of this report or the information contained herein. No matter
contained in this document may be reproduced or copied by any means without the prior written consent of RBC Capital Markets in each instance.
Additional information is available on request.
To U.S. Residents: This publication has been approved by RBC Capital Markets, LLC (member FINRA, NYSE, SIPC), which is a U.S. registered broker-dealer and which
accepts responsibility for this report and its dissemination in the United States. Any U.S. recipient of this report that is not a registered broker-dealer or a bank acting
in a broker or dealer capacity and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report, should contact
and place orders with RBC Capital Markets, LLC.
To Canadian Residents: This publication has been approved by RBC Dominion Securities Inc. (member IIROC). Any Canadian recipient of this report that is not a
Designated Institution in Ontario, an Accredited Investor in British Columbia or Alberta or a Sophisticated Purchaser in Quebec (or similar permitted purchaser in any
other province) and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report should contact and place
orders with RBC Dominion Securities Inc., which, without in any way limiting the foregoing, accepts responsibility for this report and its dissemination in Canada.
To U.K. Residents: This publication has been approved by RBC Europe Limited ('RBCEL') which is authorized by the Prudential Regulation Authority and regulated by
the Financial Conduct Authority ('FCA') and the Prudential Regulation Authority, in connection with its distribution in the United Kingdom. This material is not for
general distribution in the United Kingdom to retail clients, as defined under the rules of the FCA. RBCEL accepts responsibility for this report and its dissemination in
the United Kingdom.
To EEA Residents: This material is distributed in the EU by either RBCEL on an authorised cross-border basis, or by RBC Capital Markets (Europe) GmbH (RBC EG) which
is authorised and regulated in Germany by the Bundesanstalt für Finanzdienstleistungsaufsicht (German Federal Financial Supervisory Authority) (BaFin).
To Persons Receiving This Advice in Australia: This material has been distributed in Australia by Royal Bank of Canada, Sydney Branch (ABN 86 076 940 880, AFSL No.
246521). This material has been prepared for general circulation and does not take into account the objectives, financial situation or needs of any recipient.
Accordingly, any recipient should, before acting on this material, consider the appropriateness of this material having regard to their objectives, financial situation and
needs. If this material relates to the acquisition or possible acquisition of a particular financial product, a recipient in Australia should obtain any relevant disclosure
document prepared in respect of that product and consider that document before making any decision about whether to acquire the product. This research report is
not for retail investors as defined in section 761G of the Corporations Act.
To Hong Kong Residents: This publication is distributed in Hong Kong by Royal Bank of Canada, Hong Kong Branch, which is regulated by the Hong Kong Monetary
Authority and the Securities and Futures Commission (SFC) in Hong Kong, RBC Investment Services (Asia) Limited and RBC Global Asset Management (Asia) Limited,
both entities are regulated by the SFC. This material is not for general distribution in Hong Kong to persons who are not professional investors (as defined in the
Securities and Futures Ordinance of Hong Kong (Cap. 571) and any rules made thereunder.
To Singapore Residents: This publication is distributed in Singapore by the Royal Bank of Canada, Singapore Branch, a registered entity licensed by the Monetary
Authority of Singapore. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any
recipient. You are advised to seek independent advice from a financial adviser before purchasing any product. If you do not obtain independent advice, you should
consider whether the product is suitable for you. Past performance is not indicative of future performance. If you have any questions related to this publication, please
contact the Royal Bank of Canada, Singapore Branch. Royal Bank of Canada, Singapore Branch accepts responsibility for this report and its dissemination in Singapore.
To Japanese Residents: Unless otherwise exempted by Japanese law, this publication is distributed in Japan by or through RBC Capital Markets (Japan) Ltd. which is a
Financial Instruments Firm registered with the Kanto Local Financial Bureau (Registered number 203) and a member of the Japan Securities Dealers Association
(“JSDA”) and the Financial Futures Association of Japan (“FFAJ”).
® Registered trademark of Royal Bank of Canada. RBC Capital Markets is a trademark of Royal Bank of Canada. Used under license.
Copyright © RBC Capital Markets, LLC 2021 - Member SIPC
Copyright © RBC Dominion Securities Inc. 2021 - Member Canadian Investor Protection Fund
Copyright © RBC Europe Limited 2021
Copyright © Royal Bank of Canada 2021
All rights reserved

2021-11-19 (RBC Capital M) RBC Imagine - Preparing For Hyperdrive

Uploaded by

Copyright:

Available Formats

2021-11-19 (RBC Capital M) RBC Imagine - Preparing For Hyperdrive

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

2021-11-19 (RBC Capital M) RBC Imagine - Preparing For Hyperdrive

Uploaded by

Copyright:

Available Formats

Preparing for Hyperdrive

Themes that will Define Our New Future

EQUITY RESEARCH | NOVEMBER 18, 2021

For required Non-U.S. Analyst and Conflicts Disclosures,

A message from the Directors of Research

Graeme Pearson Andre-Philippe Hardy Mark Odendahl Michael Hall

November 18, 2021 2

The Quest for Immortality .................................................................................................... 9

The Individual Revolution ................................................................................................... 47

Artificial Intelligence Activated........................................................................................... 93

Hybrid Living .................................................................................................................... 121

The Great Balancing Act ................................................................................................... 153

Imagine Industry Implications .......................................................................................... 223

November 18, 2021 3

Why you should read on

Our future-defining themes

The Quest for Immortality

The Individual Revolution

The Great Balancing Act

Imagine industry implications

Energy and Utilities

What is clear is that HVAC Industrials

Materials and Mining

The pace of drug Technology, Internet, Media and Telecommunications

November 18, 2021 7

Navigating Imagine industry implications

Exhibit 1 - Navigating the RBC Imagine future themes by industry relevance

RBC Imagine Future Themes

better identify M&A

November 18, 2021 8

The Quest for Immortality

November 18, 2021 RETURN TO TOC 9

Quest for Immortality – Introduction

November 18, 2021 RETURN TO TOC 11

Biopharma: The dawn of a life science golden age

Funding boost should allow companies to aggressively pursue R&D projects

November 18, 2021 RETURN TO TOC 12

Exhibit 2 - Public/Private funding popped in 2020 and remains strong today

Total Capital Raised ($M)

Conquering infectious disease – Novel vaccines developed in

Conquering cancer – Breakthrough therapies and novel

Brain health as the next frontier – significant advances coming

While immortality likely

November 18, 2021 RETURN TO TOC 15

Life science real estate: Collaboration drives innovation

Medical advancements in Next-generation manufacturing growing real estate demand driver

November 18, 2021 RETURN TO TOC 16

November 18, 2021 RETURN TO TOC 17

Home Healthcare: The emerging value proposition

We see multiple industry tailwinds for home-care–based services

November 18, 2021 RETURN TO TOC 18

Annual Medicare Average Medicare

Acute-Care Hospital $189.0 billion $3,250/treatment

Home Health $17.8 billion $49/day

November 18, 2021 RETURN TO TOC 19

We believe home health is a natural beneficiary in this process.

Source: RBC Capital Markets

November 18, 2021 RETURN TO TOC 20