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

Purpose: Specific interventions enabling innovative small and medium enterprises (SMEs) to access finance during a time of crisis are essential for their survival. In Europe, the recovery plan prioritises specific funds to support SMEs’ sustainability transition. This creates an opportunity for SMEs to innovate and survive during the pandemic. However, the role of public policies in supporting SMEs’ sustainability innovation during the COVID-19 crisis has not been explored. Based on the Italian context, the present study aims to analyse how COVID-19 related incentives for innovative SMEs, issued by the Italian government, have supported circular economy (CE) practices, as well as the development of consistent competences and resources during the pandemic period. Methodology: The population of Italian innovative manufacturing SMEs was 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, the consistent competences and resources they developed, and what incentives they accessed. The association between such incentives and CE practices, competences, and resources was tested using one-way analysis of variance. Findings: COVID-19 related incentives were granted to 43.43% of the innovative SMEs. Firms that accessed incentives had higher levels of CE practices, competences, and resources, with slight differences considering the type of incentives. Practical and social implications: This study argues that governmental COVID-19 related incentives may have played a role in enhancing CE practices of innovative SMEs. 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. Originality: The study sheds light on the relevance of dedicated incentives to include innovative SMEs in perspective policies’ decisional processes, which contribute to their sustainability transition.