Struggling to be noticed in all the political machinations and noise around Brexit is the Government’s effort to launch an industrial strategy – the first attempt at building a coherent economic growth plan since the failed experiments of British Leyland and other conglomerates in the 1970s.
Reading through the green paper published recently by the Department for Business, Energy and Industrial Strategy, it was encouraging to see how central the concept of innovation is to the Government’s vision of a thriving UK economy of the future. Indeed, business secretary Greg Clark states: “Industrial strategy must be about creating the right conditions for new and growing enterprise to thrive, not protecting the position of incumbents.”
While more money is being committed by the Government to support research and development that backs this strategy, the UK suffers in comparison with many other countries, while entrepreneurs and SMEs struggle to secure finance in order to develop innovations.
If the UK aspires to develop a long-term economic and environmental strategy then significantly greater levels of investment into innovation will be required
In 2014 the UK’s total gross domestic expenditure on R&D reached an all-time high of £30.6bn (see fig 1), of which the private sector contributed £19.9bn and the Government £6.3bn. While these figures look impressive, the UK has consistently lagged some way behind other countries in terms of % GDP spend on R&D, with the US, South Korea, Germany and Finland spending approximately double proportionally (see fig 2).
If the UK aspires to develop a long-term economic and environmental strategy then significantly greater levels of investment into innovation will be required, not just from public bodies but from the private sector too.
Innovating and rethinking business models on circular principles can help to increase economic output, raise productivity levels, create jobs, reduce waste and help the country meet the ambitious carbon mitigation targets adopted by the Paris Agreement of 2015.
The Government will have to decide whether it wishes to retain the circular economy (CE) package being implemented by the EU. Even if the legislation is dispensed with, it should not preclude further expansion of innovative models. But for this to happen, much greater collaboration is needed between all stakeholders to ensure innovation funding is accessible and significant local as well as national input will be required.
The ambition of the London Waste and Recycling Board (Lwarb) is for London to become the global centre for developing and implementing innovative circular ideas. But Lwarb and other stakeholders need to work fast to create the right local conditions to ensure this vision becomes a reality.
Innovation is critical if the city is to be able to cope with the demographic, resources, infrastructure and environmental challenges raised by an expected increase in population, from 8.7 million to 10 or even 11 million by 2050. But the economic prize is also significant because the CE within London could add £7bn in GDP and create 12,000 new jobs in the city by 2036.
The capital already enjoys incredible advantages through world-class universities, thriving technology and design industries, a talented entrepreneurial population and, importantly, the finance available to make things happen. Yet despite a number of funding schemes being introduced in recent years, many organisations, particularly SMEs, cite access to finance as the number one barrier to innovation.
While the large corporates will be critical to London transitioning to a CE, systemic changes will not happen overnight and we must find ways of developing and scaling innovations at a local level that can build on the evidence base already developed by the city’s SMEs.
There are a number of great examples of high potential CE start-ups coming to market that can help us to rethink fundamentally how use of resources is approached – and also create wider economic and societal impact.
Government may need to provide some first-loss cover to attract the likes of risk-averse pension funds
Loop Hub and Globechain have designed platforms to facilitate reuse and exchange of assets; Adaptavate is creating sustainable, high-performing alternatives to construction materials; the likes of Bio-Bean and Snact have developed innovative uses for food waste; and Ooho, Bump Mark and Cup Club are disrupting the packaging market.
Start-ups still struggle to raise finance, with critical grant applications often taking six months to process, and seed and venture capital fund-raising rounds consuming management time at the expense of company development. Accelerators and incubators have helped to take some of this burden away from entrepreneurs so they can focus on the innovation, but they have tended to target the rapid growth potential technology companies rather than innovations that still require significant research.
The latest Beauhurst research into UK non-listed equity investment shows that investment into UK companies in 2016 was down 12% year-on-year at £3.6bn. But the report also notes that securing equity and support from professional investors significantly increases the odds of a business surviving.
The fact that the rate of failure evident in the cleantech sector at 21% is a reminder that we need to be prepared to risk failures in nascent industries if they are also generating longer-term innovations. Funders such as Sustainable Ventures, Climate KIC and the Carbon Trust have recognised the need to take a longer-term supportive role with innovative startups that might need time to commercialise their products, but other investors with patient capital are required at scale.
Collaboration with other corporate, academic and public sector partners will be required
Finding a means of mobilising longer-dated funds into the innovation space will be critical, but the Government may need to provide some first-loss cover to attract the likes of risk-averse pension funds.
Lwarb is launching an investment programme to provide funding and advisory support to CE SMEs over the long term, tailored to the specific needs of businesses at each stage of their development, including acceleration/ incubation support, venture capital and growth capital.
Collaboration with other corporate, academic and public sector partners will be required if we are to create the capacity and conditions necessary to effect real change. Lwarb is already working with several large and small partners on projects, and has launched a Route Map outlining the actions required to turn London into a circular city.
Lwarb and other like-minded bodies also continue to promote innovation and demonstration projects through initiatives such as the New Plastics Economy, which is a group of global organisations looking to tackle some of the most entrenched plastic market challenges.
The creation of a co-ordinated industrial strategy for the UK will give the Government the opportunity to systemically implement many of the lessons learned in fostering innovation in order to develop a resilient, resource-efficient, high-growth economy, despite the ongoing political turmoil.
Climate innovation award
Lwarb and EU public-private innovation partnership Climate-KIC ran a Climate Innovation Award in London in December. Participating start-ups, including those in the field of food waste and the built environment, pitched their ideas to a panel.
One of the winners of a £20,000 prize was Adaptavate, which has developed building products made from agricultural waste. Its Breathaboard (pictured) is a bio-composite alternative to plasterboard, which passively regulates moisture indoors. It is designed to be cradle-to-cradle and consists of 80% renewable agricultural waste.
Lwarb investment programme
Lwarb offers an investment fund to support innovative circular solutions and boost additional treatment capacity in London. Investment is available primarily to SMEs. Funds can be invested directly into businesses in the form of debt or equity, or into third-party fund vehicles that directly target the circular economy or waste infrastructure sectors.
Investment capital comprises monies from Defra and returns on existing investments. To date, Lwarb has deployed £41m of investment capital, leveraging in a further £91m of private sector investment. Investments have ranged from anaerobic digestion plants to plastics recycling, furniture reuse and a major commitment to the London Green Fund.
Stuart Ferguson is head of investment at Lwarb