Dear Friends,

It is with great pleasure that we present to you the first biweekly briefing from the RA&A Lab. Designed as the content incubator for RA&A, the Lab’s mission is to track the trends shaping the global economy and identify the key levers of action that can help you drive impact on the issues that matter most. From strategy to coalition-building, program and thought leadership, it is the place where impactful ideas are born.

Much of the Lab’s work happens behind the scenes in support of our clients and our advisory work. Insights are always better when they're shared, of course, and we wanted to create a way to share with you on a regular basis some of things the team is looking into as part of its work. This informal briefing aims to do just that. 

We hope you enjoy it.

Kindest regards, 

Richard Attias

Executive Chairman,

Richard Attias & Associates

Elie Chachoua 

Director,

RA&A Lab

Another Leap for Mankind 

This past month saw Virgin Galactic’s founder, Richard Branson, and Blue Origin’s founder, Jeff Bezos, both fly to space on their respective spacecrafts.

Until then, only a handful of private citizens had been given the opportunity to pay for the trip, some spending more than $20m for a multi-night stay at the International Space Station. Bezos and Branson’s flights, by contrast, offer the prospect of shorter trips to suborbital space at a cheaper price: Branson as low as $250,000, and Bezos as low as $200,000, if 2018 estimates hold. 

While objectively still unaffordable for most, this drop in cost (and in orbit) might nevertheless help grow the commercial space tourism market. A Cowen survey, for example, estimates a market size of 2.4m customers for a $250,000 price tag. As of March 2021, Virgin Galactic had sold 600 reservations at that price and had another 1,000 pre-reservations in the form of refundable $1,000 deposits towards buying a ticket, according to its SEC filings.

Despite reductions in cost, space tourism will likely remain a small part of the space economy. Estimates put the space tourism market at more than $3bn within the decade, compared to an estimated valuation of over $800bn for the global space economy by 2030 (from $350bn today). As of 2019, most of the revenue resides in commercial satellite services ($126-130bn) and consumer equipment relying on satellite transmissions ($125-130bn).  

Whether sending goods or people to space, a growing space industry means more rocket launches, leading some to worry about environmental impact. On a CO2 per passenger mile, for instance, a Virgin Galactic flight will emit 60 times more than a London-New York business flight. Even fuels like hydrogen, which do not generate CO2 upon combustion, require energy to be produced and thus have a carbon footprint. One solution being explored is the production of green hydrogen which, while not commercial yet, is being actively pursued for reasons beyond space purposes.

While much is known about the ozone and climate impact of some rocket propellants, less is understood about the environmental impacts of a fully-fledged space economy. Given the co-benefits that can result from space exploration and the speed at which the industry is developing, it will be important for scientific efforts to study these potential impacts and for policy makers to keep an eye on the outcomes of those studies. 

Many will still take the trip regardless. As Musk likes to remind us when talking about interplanetary travel, “it's dangerous, it's uncomfortable, it's a long journey. [And] you might not come back alive, but it's a glorious adventure and it'll be an amazing experience".

Less Than 100 Days Till Glasgow

July 24th marked the 100 days milestone until the climate summit in Glasgow. The stakes are high, the objective clear: to put the world on track to limit global warming to 1.5C. 

The past two weeks have seen important developments. On Bastille Day (July 14), the EU announced a series of regulatory proposals as part of its goal to reduce emissions by 55% by 2030 – a commitment it is backing up with an updated sustainable finance strategy and carbon border tax adjustments. Two days later, China’s carbon market had its first day of trading, becoming the world’s largest carbon market in the process. At $7.92/tCO2e on market close, its carbon price was comparable to that of the US Regional Greenhouse Gas Initiative ($7.97/tCO2e), though still far below the EU’s or the UK’s, where futures are now above the €50t/CO2e mark.

Positive news was also present on the sustainable finance front, with global sustainable debt issuance expected to surpass $1trn by year end (vs. $477bn in 2020), the G7 endorsing mandatory climate-related financial disclosure, and the G20 finance ministers making explicit reference to carbon pricing for the first time ever. 

Yet there is still a long way to go. Despite 70% of the global economy now committed to net-zero goals, global emissions are rising again and are on track to hit their highest level yet by 2023. As for the financing front, according to BNEF, just 2% of the COVID stimulus spending in the top10 G20 countries has actually been dedicated to green activities (vs. 7% for carbon-intensive ones).

To avert catastrophic climate change, these discrepancies must be addressed. Fortunately, acting at the speed and scale required by science could be the best economic opportunity the world has ever encountered. In the energy sector alone, for example, working towards net-zero would add 4% to global GDP and create 25m additional net jobs by 2030. To quote US Climate Envoy John Kerry, "the solutions to climate change are the greatest opportunity we have seen on this planet since the industrial revolution."

This opportunity will not be confined to developed markets. Gabon, for example, is already planning to capitalize on a rapidly growing carbon offset market to both protect its biodiversity and develop its rainforest. Such combination of nature-based solutions and of carbon pricing could be a game changer in driving private-led reforestation efforts. At $25/tcO2, for example, reforestation becomes more profitable than running a dairy farm or having lowland grazing livestock farm, according to Credit Suisse. 

This cannot happen without capital mobilization. To deliver the Paris Agreement, clean energy investments in emerging markets must increase by a factor of 7 by 2030. This will require foreign private capital, leading some like Larry Fink to call on the IMF and the World Bank to take a more active role in the transition by acting as ‘first loss’ institutions.

And it won’t happen without the big players. Comparing the climate outcomes of the G7 summit and of the G20 environment ministers meeting shows how complicated navigating the politics can be. For Glasgow to succeed, we have no choice but to do better. As Physics Nobel Laureate Richard Feynman once said, "For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled."

Edtech Gets a Schooling 

China did a large-scale intervention in the Edtech market in the last week of July, requesting private tutoring companies that teach the school curriculum to turn non-profit. It also prevented them, among other measures, from accessing foreign capital, pursuing IPOs and teaching during weekends or holidays. 

The move wiped off tens of billions in market capitalization for the top Edtech players, bringing havoc to a market that had attracted 10bn+ of venture capital funding in 2020 alone and was expected to reach $182bn by 2023 (nearly double the 2019 levels). The $1trillion asset selloff that ensued also led to the SEC calling for new disclosure requirements for Chinese companies seeking listing in the US.

The Edtech regulations are the latest in a series of interventions in the sector. Back in May, for example, the Chinese government had already threatened a limit on fees, leading startups like VIPKid, Zuoyebang, and Yuanfudao to postpone their IPOs. In June, the government also announced the creation of a special department to regulate the sector. 

Among the official reasons given for the clamp-down were concerns as diverse as whether the rapid growth of the sector had come at the expense of quality, what the impact of that growth was on students' well-being, and whether inequalities might arise because of the growing costs of the service. The last one matters a lot for the government. Half of the families sending their child to extracurricular training spend over $1,500 per year on those activities (about 36% of the median per capita disposable income in 2020). Such costs might disincentivize larger family units, which China is now actively promoting following the end of its one child policy. 

Not all is lost for Edtech. Official language notably seems to leave the door open to for-profit activities outside the school curriculum, leading to expectations that tutoring companies will simply spin-off those parts as separate entities. How fast they will be able to will depend on their ability to restructure and on their balance sheet, with analysts seeing some better positioned than others. 

As Lao Tsu once said, "In the pursuit of learning, every day something is acquired. In the pursuit of Tao, every day something is dropped." Whether he foresaw the drop in Edtech stocks is for anyone to guess, but what is clear is that the sector will have to learn and adapt.

Rays of Hope

The pandemic might have hit them hard, but the Olympics are still the Olympics: an inspiring display of courage, a constant search for human excellence be it athletic or societal, and, of course, a plethora of world records. With robots in and around the courts, it was also an exciting peek into technology and the future of sports.

The games have always been a major global platform for reflecting the spirit of the time. Athletes of the Tokyo games stayed true to this tradition, bringing the world’s attention to critical issues where we can and must do better - from mental health and racial justice to equality and climate change. 

At a time when the delta variant is on the rise, they also reminded us of how much we strive to and need to support each other in the pursuit of greatness – an aspiration wonderfully captured by the new motto of the games ‘Citius, Altius, Fortius – Communis’ (Faster, Higher, Stronger –Together). 

Here are some of the things on the Lab's radar over the next few weeks: 

• August 5: G20 Digital Economy Ministers' Meeting
• August 12: International Youth Day
• Aug 23 - Sept 3: 3rd meeting on the Post-2020 Global Biodiversity Framework
• Sept 1: OECD's International Migration Outlook 2021
• Sept 1-2: Ministerial Conference on Marine Litter and Plastic Pollution

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