R&D takes the lead in fight against Covid-19 and climate change

22 March 2021 Consultancy.eu 5 min. read

A report from business consultancy Ayming reveals how research & development (R&D) efforts are navigating the immediate challenges from Covid-19 while also balancing long term sustainability demands. 

Ayming surveyed well over 300 R&D professionals, C-suite executives and business owners across 13 countries spanning Europe and North America, looking to gauge the state of R&D and innovation across major markets. This is Ayming’s second such report in two years, and the good news is that attitudes towards R&D are warming across the business community.

On the flipside, life is simply not the same as it was pre-Covid-19, and the investment-heavy R&D segment has felt the force of the pandemic. In response to the pandemic-induced downturn, growth in R&D budgets in most major markets was slowed down, if not halted altogether.

R&D budgets will be impacted by Covid-19 over the next three years

“Covid-19 will affect R&D investment well into 2021, if not beyond,” noted Katiuscia Terrazzani, a Managing Director at Ayming in Italy.  The rationale is clear: businesses may have a vision for innovation, but their first priority now is on stabilising their revenue and cost streams amid an economic recession.

No doubt, some sectors such as healthcare and medical equipment have seen ballooning budgets during the crisis, but the big picture has been all about shrinking R&D spend. That being said, R&D departments are far from being shut down. Even if to a lesser extent, most businesses expect continued access to funding in the next few years.

Government initiatives have played a big role here. Public funding in the R&D space has been made available in many key markets, with the aim of keeping businesses afloat. The researchers point out that more economic relief is also expected from the EU, much of which will likely be channeled into R&D.

The fact is, while businesses have immediate survival to worry about, R&D is a crucial part of their future survival – which explains the priority being given to the segment. Consider the main drivers behind R&D investment and strategy. Many want to improve their own technological capabilities, although keeping pace with long-term market trends, future demand and staying ahead of competitors are all equally strong driving forces.

Main drivers of R&D investment and strategy

With the ‘new normal’ around the corner, this imperative to align with market trends has grown all the more urgent. Against this backdrop, it is unlikely that R&D investments will remain subdued for long. In fact, many report that the relaxed regulatory environment and better access to facilities and funding these days has actually spurred on their R&D strategy.

The sustainability agenda

As they orient themselves towards the future, businesses are also looking beyond Covid-19 to longer-term trends – the high risk from climate change for instance. For one, changing weather systems and increasingly frequent natural disasters are having a direct economic impact, causing myriad disruptions for business.

Then there is the regulatory side of climate change, as environmental, social and corporate governance (ESG) factors take centre stage in financial reporting, and a host of tax incentives are emerging to drive a more sustainable approach to business. Not surprisingly, Ayming found that sustainability is increasingly on the R&D agenda across key markets.

Drivers of sustainable R&D

Many businesses have pivoted their value system towards a more sustainable future – evidenced by a growing commitment to ‘net zero’ emissions in coming years. Sustainable innovation aligns directly with this value system – a driving force for many. Businesses that haven’t felt the urge to decarbonise from within are facing pressure to do so from an increasingly discerning and climate-conscious consumer base.

Government legislation is another driving force for many, spanning tax incentives, carbon tax in some markets, penalties, or simply a change in reporting standards. All things considered, going green actually adds up to a better financial performance – a realisation that is fast spreading through the business community.

Underlying all these factors is the global pressure to go green – driven by the Paris Climate Accord and other similar initiatives. As consumers become aware, governments get involved and competitors adopt sustainable practices, businesses are being pushed unequivocally towards a sustainable future.

Budget allocations to sustainable R&D

At the same time, sustainability remains a fringe investment for all too many big businesses. Jan Lucas, a Managing Director at Ayming in Germany, uses the automotive sector to portray the barriers to serious sustainable investment in some industries.

“In a big factory, you could have machinery worth 100 or 200 million euros. This has to be amortised. Take the car industry: unfortunately, it’s far easier and cheaper to improve the software for diesel engines, than to look more seriously at electromobility.”

According to the report, Covid-19 and its upheaval of conventional business norms will help accelerate the sustainability journey to a large extent. Meanwhile, the imperative lies on business leaders, governments and a range of other stakeholders to use innovation as a ticket through the Covid-19 crisis and the broader climate emergency.