How the European Union wants to enable start-ups to protect the climate and create a thriving economy – What start-ups need to know
The European Commission, headed by Ursula von der Leyen, has been active in announcing new strategies and roadmaps related to the EU ‘s future. Most notably, in December 2019 the Commission presented the European Green Deal and in March 2020 it was followed up by a new European Industrial Strategy intended to outline an economic transition towards both climate neutrality and digital leadership. In this article, we provide you with a brief overview on these two strategies and highlight implications for start-ups and SMEs.
The European Green Deal
According to the European Commission, the European Green Deal (EGD) is a roadmap for facilitating the EU’s economy transformation to carbon neutrality by turning climate and environmental challenges into opportunities across all policy areas while also maintaining a just and inclusive transition. President von der Leyen argues that ‘the European Green Deal is our new growth strategy – for a growth that gives back more than it takes away.” The roadmaps centrepiece is a pledge by the EU to increase their climate ambitions by 2030, to achieve carbon neutrality by 2050 and to decouple growth from emissions. The EC has announced several measures regarding these goals: it’s intentions to raise massive public investments and direct private capital towards climate and environmental action, to pass a European climate law, to revise and extend the EU ETS, to ensure effective carbon pricing and to introduce a carbon border adjustment to avoid carbon leakage.
Several sectors are identified as crucial to this new strategy: Firstly, the energy system should be decarbonized and digitalized. Secondly, the buildings sector will need to be improved regarding the efficient use of resources and energy. Thirdly, the mobility sector will be shifted towards sustainability and smartness more quickly. In order to finance the EDG, the European Green Deal Investment Plan (EGDIP) and the Just Transition Mechanism (JTM) were announced. According to the EGDIP, €1 trillion of sustainable investments will be mobilized during the next decade.
The EGD does not provide a specific industrial strategy but nonetheless emphasizes the role of innovation and therefore start-ups and SMEs. In that spirit, the Horizon 2020 program will contribute 35% of its budget to fund new solutions for climate change. In particular, the role of the European Innovation Council (EIC) will be strengthened. The EIC will dedicate funding, equity investment, and business acceleration services to high-potential start-ups and SMEs in order to achieve breakthrough innovation that can be scaled up rapidly on global markets.
The EIC is the third pillar of Horizon 2020 and supports innovators and researches developing high-risk, breakthrough innovations with the potential to create new markets and boost jobs, growth, and prosperity in Europe. This new EIC pilot offers €2.7 billion in funding for the period 2018-2020; opportunities for networking, mentoring and coaching; as well as strategic advice to upgrade the innovation ecosystem in Europe. Four different support schemes are available: the SME Instrument, the Fast Track to Innovation, parts of Future and Emerging Technologies, and a set of „crack the challenge“ prizes (known as EIC Horizon Prizes). Here you can learn more about this great opportunity for start-ups and SMEs.
A new industrial strategy for Europe
The European Commission has also released its new industrial strategy on the 10th of March 2020. With this strategy, the EC proposed a plan to achieve the twin transition (sustainability and digital sovereignty) and to foster European competitiveness. Among other aspects, the EC intends to create a more unified digital single market, support industry towards climate neutrality, build a more circular economy and embed a spirit of industrial innovation. Most notably, this entails support for breakthrough technologies, a circular economy action plan and new ways of working with stakeholders such as the launch of a Clean Hydrogen Alliance. With the new industrial strategy, the EC acknowledges the central role of SMEs and start-ups since the European economy is composed of 99% of SMEs or 25 million SMEs employing around 100 million people.
The EC stresses the essential role of SMEs in achieving the twin transition and has released a dedicated SME strategy. Three main pillars of action are identified in the strategy paper: Firstly, capacity-building and support for the transition to sustainability and digitalization. Secondly, reducing regulatory burden and improving market access. Thirdly, improving access to financing. More specifically, the Commission intends to help businesses to become more sustainable and digital by introducing dedicated sustainability advisors and other sustainability services, by developing digital crash courses for SME employees, by launching a „digital volunteers“ program to alleviate the digital divide between the generations, by expanding start-up services like the digital innovation hubs (e.g. Start-up Europe and the Europe Enterprise Network) and by contributing additional €300 million to the European Innovation Council. The EC wants to support SMEs in scaling e.g. by facilitating cross-border cooperation and creating opportunities in third country markets. Lastly, the EC proposed several measures to improve access to finance for SMEs such as establishing a SME Initial Public Offering Fund or by introducing a first-of-a-kind/reward mechanism for high-potential start-ups (the ESCALAR initiative). With all these initiatives, the EC specifically includes start-ups in their SME definition.
To conclude, it is obvious that the EC wants to add credibility to their grand ambitions. First projects are set in motion and while it remains unclear to what extent the EC will be able to realize their aspirations; the first important step is done by clearly outlining the way forward. It is most remarkable that the EC has embraced the twin challenges of both carbon neutrality and sustainability as well as digital sovereignty through the Green Deal and the new industrial strategy. All these strategies and roadmaps have one aspect in common: they are based on the firm belief, and in fact, the necessity, to promote innovation throughout the European economy to achieve these goals. For start-ups, this implies but one thing: a great opportunity to become digital and sustainable champions of the European economy.
Disclaimer: The COVID-19 crisis will likely affect the implementation of the European Green Deal and the new industrial strategy. At this point in time, it is too early to assess these impacts. Nonetheless, officials of the European Commission like Frans Timmermans, Executive Vice-President for the European Green Deal, have announced ongoing support to these strategies.
For more about the recent roadmaps and strategies:
An SME Strategy for a sustainable and digital Europe
A New Industrial Strategy for Europe
Enhanced European Innovation Council (EIC) Pilot
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