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Small companies, big ideas

29/10/2012

Eco-innovation matters in two ways for small and medium-sized companies (SMEs). First, many SMEs could benefit by introducing eco-innovative approaches into their operations. Second, SMEs, and especially start-ups, can be the ideal incubators for eco-innovation, and can bring to market new, less environmentally damaging products, services and processes.

Reorienting SMEs towards eco-innovation is important because more than 99% of European Union companies are SMEs, covering all sectors, from bakers to booksellers, manufacturers and retailers. SMEs are responsible for two-thirds of private sector employment, and about 60% of EU GDP. Spreading eco-innovative approaches throughout small and medium-sized companies could therefore reap wide-ranging benefits.

However, eco-innovation can be a challenge for SMEs. An European Union funded project, the SPIN project (Sustainable Production Through Innovation In SMEs) worked on mechanisms for exchanging knowledge about eco-innovation between SMEs in the Baltic region. The project, which finished in January 2012, had partners from Denmark, Estonia, Finland, Germany, Lithuania, Poland and Sweden. It was supported by the EU Baltic Sea Region Programme.

Project coordinator Dr Daniel De Graaf of Germany's Federal Environment Agency says that the project set out to “bring together the supply side of eco-innovation and the demand side”. For example, the project matched a Lithuanian company, Kaunas Paper, with Germany's Voith Paper, which produces machinery for paper mills. Voith was able to provide Kaunas Paper with specialised equipment for the recycling of Tetra Pak packaging – the first such facility in Lithuania. Kaunas Paper now recycles and uses 20,000 tons of Tetra Pak packaging per year, whereas previously the waste would have been landfilled.

During the course of SPIN, the project partners were able to learn more about the barriers that prevent more SMEs from introducing eco-innovative approaches. The main issue, says De Graaf, is that SMEs “don't realise they have a need”. They are not aware of the scale of the benefits that could arise from eco-innovation, and, unlike larger companies, do not have environmental or corporate responsibility executives whose job it is to ensure that the company is as sustainable as possible.

Industrial SMEs in particular could benefit from eco-innovation, De Graaf says. On average, material consumption makes up 45% of their costs. If new technologies can be introduced – as in the case of Kaunas Paper – or new eco-innovative systems, such companies could potentially make significant savings.

However, “a lot of SMEs refrain from applying new technologies. They stick to what they know,” according to De Graaf. “You really need to convince them that eco-innovation really works”.

This awareness gap is often a greater challenge than finding money to invest in eco-innovation, de Graaf says. Investors are becoming more aware of the benefits of eco-innovation and numerous schemes are being established to provide capital to SMEs. But the companies have to be open to the ideas in the first place.

The German Material Efficiency Agency (DEMEA, Deutsche Materialeffizienzagentur) carried out a survey of German industrial SMEs and concluded that only about a fifth “are really open and willing to receive consultancy [on eco-innovation],” De Graaf says. Nevertheless, as Germany has about 190,000 industrial SMEs, this is potentially a huge number of progressive SMEs, and could lead to a significant eco-innovative impact.

But this finding revealed another barrier. DEMEA has the capacity to offer about 600 eco-innovation consultations each year, meaning it would take more than 65 years to provide services even just to the open-minded German industrial SMEs. “It is also a question of capacity,” De Graaf says. There is a need for “more trainers, more people who have the capability to do consultancy”. There could be a major boost to eco-innovation in SMEs if greater capacity can be put in place.

Starting small

The second way in which eco-innovation matters for SMEs is by providing a market opportunity for entrepreneurs. Smaller companies are often the best placed to identify a specific market demand and develop a new approach. Unlike large companies, they are not committed to legacy technologies and do not have existing markets to protect. Some small companies then grow into huge companies that revolutionise the way business is done – which can be at the core of eco-innovation. Prominent US examples, such as Google and Microsoft, are commonly cited in this category.

Guido Lena, director of sustainable development for the SME representative organisation UEAPME (Union Européenne de l’Artisanat et des Petites et Moyennes Enterprises) says that SMEs are no more likely than large companies to be focused on eco-innovation or sustainability. However, whereas big companies can have “long and bureaucratic procedures,” or might want to protect incumbent technologies, SMEs can potentially develop green ideas more quickly.

Entrepreneurs also respond to market demand, and the demand for eco-innovative or sustainable products, services and processes is growing, meaning great opportunities for start-ups and small companies that offer genuine green innovations.

But entrepreneurs with new eco-innovative ideas also face barriers. They can come up against the prejudice that green products are more expensive, making investors wary about backing them. “Generally it is more difficult for these [eco-innovative] companies to get financing, particularly from the banks,” Lena says.

The ideas are out there. The SPIN project built up a database of 280 eco-innovative offerings from SMEs in the countries covered by the project. These range from water-purification and water-treatment technologies, to better ways of rolling out green roofs, eco-innovation in furniture production and many others. However, for SMEs to realise their potential as introducers and implementers of eco-innovation, the right triggers of change need to be put in place: awareness raising, increased eco-innovation consultancy capability, finance for entrepreneurs, and promotion of sustainability as a market opportunity.

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