Determinants of circular economy practices in innovative SMEs in COVID-19 times: the role of policy incentives

Specific interventions enabling innovative small and medium enterprises (SMEs) to access finance during a time of crisis are essential for their survival. In Europe, policies to respond to the COVID-19 crisis are centred on the establishment of a recovery plan, which prioritises specific funds to support their sustainability transition from 2021–2027. This creates an opportunity for SMEs to innovate and survive during the pandemic. However, the role of public policies in supporting sustainability innovation during the COVID-19 crisis has not been explored, especially when focusing on innovative SMEs. Based on the Italian context, the present study aims to analyse how COVID-19 related incentives, issued by the Italian government, and dedicated to innovative SMEs, have supported circular economy (CE) practices, as well as the development of consistent competences and resources during the pandemic period. The population of Italian innovative manufacturing SMEs was also surveyed. Firms were required to indicate the extent to which they adopted CE practices in the Take, Make, Distribute, Use, and Recover fields of action. We also investigated how consistent competences and resources were developed and what incentives were connected to the emergency innovative SMEs accessed. The association between such incentives and CE practices, competences, and resources was tested using one-way analysis of variance. COVID-19 related incentives, introduced to support innovative SMEs during the pandemic, were granted to 43.43% of the firms. The analysis reported significant differences between firms that accessed incentives and those which did not. The firms that accessed incentives had higher levels of CE practices, competences, and resources, with slight differences considering the type of incentives. This study argues that governmental COVID-19 related incentives may have played a role in enhancing CE practices of innovative SMEs. To a degree, public support allows firms to invest in the development of internal assets that are needed to capture new business opportunities. This study provides managers with resource and competence knowledge that allows for the adoption of CE practices in a time of crisis. It also sheds light on the relevance of dedicated incentives to include innovative SMEs in perspective policies’ decisional processes, which contribute to their sustainability transition.