Understanding the Drivers of Eco-innovation Intensity in SMEs

June Dun (Aston Business School), Effie Kesidou (Leeds University Business School), Anastasia Ri (Aston Business School), Stephen Roper (Warwick Business School)

SMEs account for around a half of all business GHG emissions in the UK and are therefore critical to achieving the UK’s 2050 net zero target. Prior studies of eco-innovation focus primarily on large corporations and start-ups providing limited insights into SMEs’ journey towards net zero. Here, reflecting the multi-dimensional nature of eco-innovation, we examine the notion of eco-innovation intensity measured by the number of eco-innovation practices which are adopted by SMEs. Our econometric analysis, which is based on new survey data from around 1,000 UK SMEs, suggests that SMEs initial engagement in eco-innovation practices is driven by a range of strongly interrelated factors which reflect different aspects of the business eco-system. Aspects of the funding environment – government grant and subsidies and the availability of external finance – prove critical in helping firms build a business case and enable their initial engagement with eco-innovation. Other eco-system capabilities – most notably business owner-managers’ environmental attitudes and customer demands – then prove important in sustaining firms’ engagement with eco-innovation, as reflected in their eco-innovation intensity. Our results emphasise the complementary role of eco-system resources and firms’ environmental orientation in supporting sustained SME engagement with the net zero transition. The results have both managerial and policy implications.