Researchers from Tallinn University of Technology – Siret Ulp, Doctoral candidate junior researcher Tarlan Ahmadov, and professor Wolfgang Gerstlberger – conducted a study in Estonia to find out what pushes small and medium sized manufacturing enterprises to adopt eco-innovation and came up with some interesting results.

It turned out that eco-innovation, which is all about development achieved in a smart way and with the least possible impact on the environment, is mostly adopted by those small and medium-sized enterprises that are more aware of sustainability issues and feel the pressure of stakeholders (enterprises that also care about the opinion of their customers).

Awareness has a big impact

According to the researchers, the study showed that sustainability awareness played a crucial role in the adoption of eco-innovation. ‘Companies that are aware of the environmental impacts of their activities and products are more likely to invest in eco-innovation projects,’ explains Ulp. Sustainable enterprises focus on reducing their environmental footprint, improving their reputation, and attracting environmentally conscious customers, she said.

The study included four statements on awareness: 1) increasing environmental pollution (e.g. increasing carbon dioxide emissions) is a major threat to society, 2) enterprises are responsible for environmental pollution, 3) enterprises want to reduce environmental pollution, and 4) recycling reduces environmental pollution.

There were seven statements on activities/behaviours/practices already in place in the enterprise (e.g. on environmentally sustainable materials, recycling, energy saving, etc.). All of them could be rated on the usual five-point scale, where 1 means total disagreement and 5 means total agreement.

In addition to increased awareness of sustainability issues, another important factor affecting eco-innovation is pressure from stakeholders. Put simply, enterprises that care about the opinions and values of stakeholders will invest in green packaging, renewable energy technologies, and waste reduction to meet the expectations of their customers.

Six statements were presented to assess the so-called ‘pressure’ or impact of stakeholders/customers, ranging from the will of management to act sustainably and wisely to the assessment of pressure from different stakeholders (employees, investors, partners, customers, etc.).

Helps to increase competitiveness

It is worth noting that eco-innovation can help small and medium-sized enterprises to meet regulatory requirements and international environmental sustainability standards. For example, the European Union has set ambitious targets for reducing greenhouse gas emissions, increasing the use of renewable energy, and promoting the circular economy. The adoption of eco-innovation can help enterprises to meet these objectives and remain competitive in the global market.

The Estonian government has taken a number of steps to promote sustainability and eco-innovation among small and medium-sized enterprises. These measures include a wide range of policy initiatives, financial incentives, and support for training and education. The researchers acknowledge that while these efforts by the Estonian government are commendable, there is still room for improvement before eco-innovation can truly take off.

What else should be done?

Ahmadov, Gerstlberger, and Ulp also put forward proposals that would contribute to a broader and better adoption of eco-innovation.

1) Policymakers should focus on expanding training and education opportunities.

2) Closer cooperation with industry stakeholders could help to embed sustainable management and business practices.

3) Support mechanisms should be more diversified.

4) Eco-innovation adoption support programmes should be developed for enterprises to improve cooperation, i.e. to help them communicate more effectively and more closely with their partners.

In addition, the researchers identified recommended actions to raise awareness among enterprises (how to act sustainably), to communicate more effectively with stakeholders, and to support the behaviours or attitudes needed to promote a sustainable business model:

1) join associations and networks of industry organisations to learn best practices and collaborate on sustainability initiatives;

2) participate in government-led sustainability programmes and initiatives;

3) work with suppliers and customers to promote sustainable practices throughout the supply chain;

4) use sustainable marketing and communication measures to raise awareness among customers and stakeholders;

5) report regularly to stakeholders (including customers) on sustainability performance and progress.

In conclusion, the study by the researchers at the School of Business and Governance of Tallinn University of Technology provides valuable information about the factors influencing the adoption of eco-innovation in Estonian small and medium-sized enterprises. The results suggest that the key drivers for eco-innovation are being aware of the importance of sustainable development and feeling pressure from stakeholders. At the same time, the role of the state and policymakers in this process cannot be overlooked. Therefore, the latter, as well as business leaders in society at large, should focus on raising awareness of sustainability issues and stakeholder involvement/consideration to achieve sustainability goals and promote the circular economy.

Who was interviewed?

In the study conducted in January 2023, 271 Estonian manufacturing enterprises were interviewed to understand the factors influencing the adoption of eco-innovation. The results will be used to draw up recommendations for SMEs and policymakers. The study is part of a larger research project led by Doctoral candidate Tarlan Ahmadov, which aims to develop a strategic model to help small and medium-sized enterprises make the transition to the circular economy.