Eco-innovation and entrepreneurship: the magic formula to economic prosperity

Michael Porter claimed that “innovation is the central issue in economic prosperity”. Accordingly, the economic success of enterprises is dependent on their ability to come up with new or significantly improved products, services or organizational practices. However, transformation to low-carbon, low-emissions, and circular economy has increased the social and political awareness of the environmental aspects of innovations. The term eco-innovation has been introduced as a way to reconcile economic and environmental priorities – and open new sustainable pathways for industry.

Eco-innovations, as defined by the Environmental Technology Action Plan (ETAP), adopted by the European Commission (EC), refer to “the production, assimilation, or exploitation of a novelty in products, production processes, services, or in management and business methods, which aims, throughout its life cycle, to prevent or substantially reduce environmental risk, pollution, and other negative impacts of resource use (including energy)”.

It is well known that eco-innovations are a driver of economic and social progress on the national (macro) level as well as a driver of business success and competitive advantage at the firm (micro) level. In the global context, where change is increasing and innovation is disruptive, differentiation strategies must be developed through eco-innovation. Investment in eco-innovation enables firms not only to gain a privileged market position but also to maintain this position in the long term.

To capitalise on the potential of eco-innovation, Finland is especially financing innovators and entrepreneurs through funding for open innovation and co-creation. A strong and solid eco-innovation system drives technological sustainability and availability. Somewhat surprisingly, however, is the fact the overall public spending on research and development (R&D) and research and innovation (R&I) has been reduced in the last few years. Therefore, there are still some barriers that hinder the full uptake of a comprehensive innovation ecosystem. Further barriers are an insufficient presence of, and focus on, non-technical skills, internationalisation, commercialisation of innovation and risk-taking readiness in Finnish business- and academia-related spheres.

Decreasing the potential barriers for eco-innovation was the focus on Ruralia Institute’s development project called Eco-innovation and business potential of circular economy in South Ostrobothnia (Ekoinnovointi ja kiertotalouden liiketoimintamahdollisuudet Etelä-Pohjanmaalla). While entrepreneurs and small businesses constitute the backbone of the Finnish national economy, their role in transition to more ecologically sustainable economy is central. Accordingly, the aim of the project was to increase entrepreneurs’ knowledge and skills in regard to eco-innovation. The project provided an eco-innovation model that divides small enterprises into four groups according to the stage of development of the innovation process. Through a variety of questions and related key indicators, the model presents what is required of small enterprises if they want to move to a more advanced level in their eco-innovation process. Even though radical forms of eco-innovation have a significant role in enabling sustainable transition, incremental improvements are very important and account for the bulk of all innovation in firms. Thus, the eco-innovation model encourages entrepreneurs to take even small steps towards eco-innovations.

The authors of the article are Silvia Gaiani and Merja Lähdesmäki

More information on the project (in Finnish): -kiertotalous/