Green R&D: Is innovation’s final destination net-zero?

Since the US passed its unprecedented package of support for ‘green innovation’ in 2022 in the form of the Inflation Reduction Act, the phrase has become a byword for how the world plans to solve the climate crisis.

Nearly two years later, there seems to be real consensus that climate technology represents the only realistic route to achieving the goals set out in the Paris Climate Agreement – namely achieving net zero by 2050.

Increasingly, the intersection between sustainability and innovation is growing. Net-zero strategies and innovation strategies are becoming synonymous and there’s increasing recognition that we’re moving towards an endpoint where all innovation will be sustainable.

Turning on the green tap

In the last year, businesses have begun to reshuffle their budgets to prioritise sustainability, projecting a positive upwards trend for this type of green R&D.

Research published by Ayming in the Autumn, which surveyed over 800 businesses globally in the International Innovation Barometer 2024, found that an emphatic 78% of respondents allocated up to 20% of their annual budget to sustainability with almost a third assigning between 11 and 20%. The indication is that far from being seen as an optional extra, sustainable innovation is increasingly being considered a commercial lever for growth.

This is due in part to the political emphasis placed on it, which clearly presents a future in which businesses should be able to derive huge commercial opportunities from sustainable innovation. We know that the greatest motivation behind investing more in sustainable innovation is the opportunity to save costs and increase efficiencies with 47% of businesses identifying this as their driver. So, whilst the upfront cost is high, many businesses have their eye on cashing in on this investment later down the line.

However, whilst the long-term picture is optimistic, current short-term economic challenges are undermining the end-goal. And despite new incentives, sustainability and environmental responsibility came as low as sixth in the overall ranking of innovation priorities with less than 25% explicitly naming it as one of their business priorities.

Whilst the global economy suffers, governments will have to continue to step in to introduce policies that spur green innovation and incentivise businesses by aligning their bottom lines with sustainable activity.

To add to this view, businesses also identified high upfront cost as the greatest barrier to undertaking green innovation. 41% of businesses feel that the initial investment required to carry out this kind of green R&D is simply too high. This narrative is reinforced by nearly a third of respondents who see a lack of R&D tax incentives and insufficient government policy as the key challenges to progress. 36% also deem insufficient grant funding programmes a barrier and 31% prioritise short-term financial goals.

All of this makes clear that the challenges are practical rather than ideological. Whilst this is certainly a positive deduction, in reality it means that despite increased funding, this is either failing to trickle down to businesses quickly enough or businesses simply aren’t aware of it. To combat this, governments need to make their support more accessible or accelerate how quickly it’s reaching the real economy if they want to truly catalyse a new wave of innovation that is specifically focused on overcoming climate challenges.

The balancing act between collaboration and competition

Everyone acknowledges that achieving global net-zero goals within the timeframe required to avoid the worst impact of climate change will require immense international collaboration.

However, the concept of knowledge sharing is often viewed with enormous scepticism. The central challenge with the concept is that businesses are reluctant to sacrifice their competitive advantage, which has been identified as an important driver for many pursuing sustainable innovation goals.

It’s therefore staggering that 87% of businesses affirmed that they were in favour of the concept of knowledge sharing when it came to their sustainable innovations, with an unambiguous 37% declaring to be in strong support. 11% were neutral and just 1% of businesses were in direct opposition.

So, what is everyone waiting for? What would it look like in practice?

Balancing competition and collaboration is a delicate task. Competition drives innovation and efficiency, whereas collaboration maximises resources and knowledge sharing. The key is to create an environment where both can coexist. This will involve creating a framework where the drive to compete is matched with opportunities to collaborate, ensuring that while companies and entities strive to outperform each other, they also recognise the shared benefits of working together towards a common goal.

The only way to deliver the kind of equilibrium required is through clear regulation, incentives for innovation, and effective platforms for sharing knowledge and resources, while ensuring fair competition and access to markets.

And crucially, as already highlighted – one of the biggest challenges with green innovation is the cost. Through shared research and development efforts, the costs of innovation green products can be reduced more rapidly – economies of scale could be achieved as more entities enter the market, and shared R&D would ultimately lead to more cost-effective production methods.

But without proper frameworks for managing this kind of collaboration in place, the reality is that whilst in principle businesses are open – even eager – to collaborate, none would freely give up their intellectual property in a competitive area.

Willingness is the crucial takeaway, however. If close to 90% of businesses globally support open innovation and knowledge sharing, accelerating green innovation becomes infinitely more achievable.

The world over, climate tech is consistently being positioned as the vehicle to deliver us to net-zero. But to generate the scale of change needed, far greater investment and collaboration is needed. As governments around the world legislate their way into a new era of sustainability-driven innovation, they should consider that businesses are willing to work together to get there faster.

Njy Rios is Partner in Innovation Incentives at innovation consultancy Ayming UK

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