How to Foster Climate Innovation in the European Union

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Tackling climate change is at the heart of current policy debates, especially in the EU, and climate innovations form an integral part. 

The European Investment Bank and Crunchbase teamed up to publish “How to foster climate innovation in the European Union,” a report that assesses obstacles faced by climate innovators, in addition to the impact of financing and policy measures. So far, data limitations hampered a more extensive understanding of these topics. In addition, existing firm-level data focus mostly on established firms, thereby underrepresenting young firms.

This report fills some of the gaps by relying on a new data source, the EIB Online Survey on Climate Innovations, which asked firms specifically about their different climate innovations, the motivations and barriers, and their views on current regulatory frameworks. 

The starting point of our data collection effort was the Crunchbase database and the Bureau van Dijk Orbis database. Over 1,600 firms participated in the survey, giving us a unique opportunity to compare established firms with young startups and scale-ups.

Line graph detailing the number of startups in the energy and sustainability sector over time

Environmental innovation and firm performance are linked

The report shows there is a strong link between environmental innovation and firm performance. Environmental innovators report a higher productivity than nonenvironmental innovators, with at least part of the difference being “causal.” In addition, the report suggests that climate innovations positively affect firms’ sales.


Availability of finance is an issue

We could argue that firms suffer from a lack of finance. Overall, we have seen an appetite for investment in environmental innovations, but at the same time an important share of firms, especially startups, feel they invested too little. In addition, availability of finance, one of the most cited barriers by climate innovators, predominantly concerns firms with investment gaps. 

On the other hand, firms that made investment in line with, or even exceeding, investment needs over the past three years, less often mention access to finance as a major barrier. This suggests a link between successful climate innovation and access to finance. Comparing the U.S. startups to their European counterparts suggests that especially the latter have limited access to much-needed finance.

Bar chart with borrowing possibilities for climate-related projects by investment gap in the EU

What can policy do?

If, in line with their ambitions, policymakers want to create more successful climate innovators, they should further reduce regulatory uncertainty and work actively to improve access to finance. In this context, especially startups, feeling that they invested too little in climate innovation ask for more advice on funding. In addition, it seems there is still a lot of uncertainty on existing technologies and processes, with a large share of the interviewed firms seeking advice.

Download the working paper here.

  • Originally published February 22, 2022, updated April 1, 2022