Sustainable R&D takes funding hit from pandemic

01 October 2020 4 min. read
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A new survey of the global research and development sector suggests that the coronavirus outbreak has decreased the likelihood of spending increases on innovation in the coming three years. Covid-19 is having a major impact on investments in sustainable innovation in particular, with 48% of respondents stating the pandemic has already negatively impacted their focus on such developments.

Research and development (R&D) refers to innovative activities undertaken by corporations or governments in developing new services or products, or improving existing services or products. With governments around the world contending with geo-political, environmental, economic and health crises in 2020, the importance of new innovations to improve productivity, reduce waste and navigate uncertainty has become more prominent than ever. This has been reflected by a spike in the tax credit schemes in place in many nations to help fund innovative projects or research and development.

A new report from innovation consultancy Ayming has highlighted a number of different trends in terms of R&D, including opportunities and challenges the sector faces. Notably, funding for innovation is diversifying. While grants and tax credit applications can be challenging, the appetite among private investors is growing, so crowdfunding has risen 17% on Ayming’s findings in 2019, and equity or debt funding is also up 6%.

What are the main drivers for your R&D strategy

Following this, according to 24.7% of businesses polled, new public funding opportunities have helped drive their growing R&D strategy. There were bigger drivers of innovation strategy, however, including the need to keep pace with competitors – at 38.2% – and the improved technological capacity many firms now have access to. With companies now having cheap and easy access to advanced tools that can be used to accelerate innovation.

With that being said, respondents did not that there were notable obstacles to R&D growth resulting from the Covid-19 pandemic. Compared to last year, the expectation for budget increases, big or small, over the coming three years has fallen 12% from 74% to 62%. While this might still seem to be broadly positive, it marks a stark contrast with the spiralling spending trajectories of many R&D departments. Compared to the overall picture, UK respondents were slightly more optimistic at 64% - possibly in the knowledge that the complex workings of a failed Brexit deal will ramp up the need for innovation across the nation’s export and import industries.

Roughly, how much of your current R&D budget is allocated to sustainable innovation projects

The emergence of a number of geo-political challenges like Brexit, technological shifts in particular sectors, and concerns over access to funding do mean that one particular field of R&D seems to have slipped down the agenda. Problematically, the most popular amount to spend on R&D relating to sustainability is between just 1% and 10%. More than a third of companies Ayming polled admitted as such, while another 5% said they spent nothing at all on sustainable innovation projects.

According to a sectoral breakdown of the results, the consumer goods and automotive industries are two of the least committed to such investment – despite being notorious for their historic sustainability problems. Roughly 48% of automotive and industrial players said they spent between 0% and 10% on sustainability, with 46% of consumer and manufacturing leaders saying the same. In contrast, 51% of health and pharmaceuticals R&D departments said they spent more than 10%, with 4.7% of respondents saying more than half their budget was allocated to sustainability.

How, if at all, have the following factors positively or negatively affected your business ability to undergo sustainable innovation?

The picture for sustainable R&D could get even bleaker in the coming period, as 48% of respondents said Covid-19 had already negatively impacted their ability to undergo sustainable innovation. It was the only factor which the largest portion of companies agreed was inhibiting their potential to innovate outright, and drastic action will need to be undertaken to rectify this. 

Ayming found that one way to improve sustainable innovation is more targeted tax incentives. At present, around 40% of companies said that tax incentives do not improve their capacity to undertake sustainable R&D, but when asked what could improve this, 28% said that increased tax incentives for sustainable projects would give them the push they needed.

Mark Smith, Partner of Innovation Incentives at Ayming UK, commented, “Governments can safeguard innovation spending by encouraging further education on R&D – because ultimately businesses need to know how much they are doing to decide whether to boost activity – and through the provision of further incentives… For a supercharged tax incentive to work, definitions need to be drawn up. It needs to be crystal clear specifically what counts as sustainable R&D for it to be rewarded. In my mind, that is our way to a circular economy.”