Drivers of different types of eco-innovation in European SMEs

Highlights

• Entrepreneurs valuing collaboration with research institutions eco-innovate more.

• Supply-side factors foster processes and organizational eco-innovation.

• Managers valuing cost-saving factors are only more prone to process eco-innovation.

• Market share factors only influence product and organizational eco-innovation.

• Expected regulations and access to subsidies/incentives do not affect eco-innovation.

Abstract

In this paper we explore the drivers of different types of eco-innovation in European SMEs. Drawing upon a database of 27 European countries, empirical evidence is found for the different roles of supply-side, demand-side and regulatory factors in encouraging the adoption of different types of eco-innovation. Our empirical strategy consists of the estimation of a trivariate probit model. Our results show that those entrepreneurs who give importance to collaboration with research institutes, agencies and universities, and to the increase of market demand for green products are more active in all types of eco-innovations. Supply-side factors seem to be a more important driver for environmental processes and organizational innovations than for environmental product innovations. The results also show that market share only has a significant positive influence on eco-product and eco-organizational innovations, while cost-savings are solely significant for eco-process innovations. Finally, prioritizing existing regulations shapes eco-product and eco-organizational innovations while expected regulations and access to subsidies and fiscal incentives do not have any significant effect on the decision to eco-innovate in Europe at the firm-level.

Introduction

Eco-innovation is defined as innovation which benefits the environment and contributes to environmental sustainability (Rennings, 2000). “Eco-innovation can be identified by its favourable impact on the environment … It applies to goods, services, manufacturing processes or business models” (OECD, 2011a p.29). Firms in developed countries are increasingly aware on the potential benefits from improved environmental performance and the European Commission has adopted an action plan on sustainable production and consumption in the context of the Lisbon Strategy (2008). A more recent European programme, more strictly focused on eco-innovation, namely the Eco-Innovation Action Plan (EcoAP) pursues also reducing pressure on the environment through innovation within the framework of the Europe 2020 strategy (COM, 2011). The plan will help to mobilize financial instruments and support services for small and medium-sized enterprises (SMEs) to improve investment readiness and networking opportunities related to eco-innovation. These facts increase the need to understand what drives SMEs to actually implement environmental innovation.

There are plenty of empirical studies on drivers of eco-innovation, which include internal and external to the firm factors (Belin et al., 2011, Cainelli et al., 2011, Horbach, 2008, Kemp and Arundel, 1998, Rennings, 2000, Rennings and Zwick, 2002). But, as far as we know, only few studies distinguish across the particular drivers of the three different types of eco-innovation delimited by Oslo's Manual OECD (2005): process, product and organizational (Horbach et al. (2012), Frondel et al. (2007), Del Rio (2005), amongst others). Although the most frequent distinction is between cleaner technologies and end-of-pipe (EOP) technologies, we adopt this multi-faceted definition of eco-innovation. Despite it is claimed that both classifications are unclear and simplistic (Del Río, 2009), the Oslo Manual division succeeds to sufficiently stress the importance of analysing eco-innovation activities under an evolutionary perspective. Applying such broad concept allows to identify eco-innovators, both strategic and passive ones.¹ Cross-country analyses of eco-innovation at the firm-level are scarce (examples are Rennings and Zwick (2002); Wagner (2008) and Johnstone and Labonne (2009)). We deploy data from for 27 European countries withdrawn from a specific Eurobarometer survey.

This paper contributes to previous literature in several ways: we address three different dimensions of eco-innovation: eco-product, eco-process and eco-organizational. More particularly, it tests differences in the effect of a given set of explanatory variables on the probabilities of each type of eco-innovation. Secondly, we explicitly take into account the interdependency of decisions on the several kinds of innovation by estimating a multivariate probit model. Third, we use a novel EU-wide dataset (Flash Eurobarometer survey #315) which allows for the provision of cross-country comparisons. Finally, we consider cross-sector specific effects which proxy sector-level driving factors influencing the eco-innovation decisions.

The paper is organized as follows: Section 2 describes the theoretical framework to draw hypotheses on specific determinants of eco-innovation. In Section 3 the data and methodology are presented. Section 4 presents and discusses the main results of the econometric model. Finally, Section 5 concludes.