Over a third of businesses lack funds for sustainability innovation

02 October 2023 Consultancy.eu 4 min. read
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Despite increasing pressure to boost green research & development (R&D), one third of businesses around the world have insufficient financial resources to innovate. Four in ten struggle to meet the high up-front costs needed to kickstart sustainable innovation, an essential first step in the coming green transition.

That is according to research from international consultancy Ayming, which surveyed 850+ companies in 17 countries around the world. The report asserts that while governments are putting sustainability innovation front and center in policy agendas, those policies are not always put into practice.

Nearly every single business surveyed (99%) is already innovating, and a huge majority (97%) reported having defined a budget for innovation. The automotive industry and civil engineering/construction industries reported the highest amount of budget allocated to sustainability innovation, both at around 14%.

How much, if at all, of your innovation budget allocated to sustainability?

A remarkable 78% of organizations have allocated up to 20% of their annual budget to sustainability. Most of that funding for innovation in sustainability is driven by financial factors, with nearly half of respondents saying that cost savings and efficiency drove their investments.

“Every single business leader now recognizes that innovation needs to be front of mind. You really can’t put it on the back burner anymore. Whereas before innovation might have been about gaining an edge, it’s increasingly about survival,” said Carlos Artal de Lara, managing director at Ayming.

The majority of both small and large companies surveyed said that they have increased (or significantly increased) their budgets for innovation this year, with 70% of large companies with over 250 employees attesting to an increase.

Has your innovation budget increased or decreased in the last year?

“These are vast sums of money. But I think it reflects what’s going on. Companies are seeing the value that their investments bring and are putting more money into it. The more you invest in innovation, the more competitive you are in the market. And in some industries, innovation is critical to a company’s survival,” said Artal de Lara.

The frontrunners

The leading industries in innovation investments are the automobile and the IT industry. With the monumental growth in the market for electric vehicles – which require all degree of advanced electronic components, digital systems, and state-of-the-art batteries – it is clear why these two industries are in the lead in innovation. The coming green transition looks towards the automotive industry as a sector that is well on the way to net-zero, though some obstacles remain.

Over a third of businesses worldwide lack funds for innovation

“It’s the space race all over again for the automotive industry. The industry has come on leaps and bounds in the last couple of years with the emergence of the popularity of electric vehicles often seen as a status symbol – driving demand for innovation and competition,” said Lauren Fortner, Innovation Manager at Ayming.

“Unfortunately, we have not seen the same pressures in the oil and gas industry,” Fortner added. “With a lack of incentives to encourage behavior changes, the energy industry is prioritizing its focus on the bottom line and profitability.”

According to the study, despite ideological support from stakeholders and governments, financial constraints are a stubborn hindrance to progress in sustainability innovation.

For example, in August 2022, the US government enacted the Inflation Reduction Act with the aim of prioritizing sustainability among US businesses. But only 22% of businesses currently view it as effective, and it remains uncertain whether the EU’s Green Deal Industrial Plan, introduced earlier this year, will have a positive effect on continent's manufacturing capabilities.

“While governments pay lip service to the need for green tech to save the world, the would-be drivers of this sustainable innovation require urgent access to funding. So as the world continues to advance towards climate crisis, governments need to address the funding gap with far greater resolve if policy is to be translated into practice,” said Njy Rios, director of R&D incentives at Ayming.