EUROPEAN COMMISSION Strasbourg, 5.7.2022 SWD(2022) 187 final COMMISSION STAFF WORKING DOCUMENT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS A New European Innovation Agenda {COM(2022) 332 final}



1Context 1.1Innovation in EU policy 1.1.1Innovation policy: a historical perspective 1.1.2Innovation and EU policies 1.1.3Towards a coherent and joined-up approach 1.2EU innovation performance 1.2.1European innovation scoreboard 1.2.2Industrial R&D and the global tech race 1.2.3Innovation output 1.2.4Startups, scaleups and unicorns 2Key areas for EU innovation 2.1Access to finance for deep tech scale-ups 2.1.1Limited EU private investment and venture capital 2.1.2Tech funding in the (post-)COVID-19 pandemic period 2.1.3Funds that could be mobilised through the action on later stage venture capital financing 2.1.4A fragmented financial market 2.1.5IP protection 2.2Framework conditions for innovation 2.2.1Regulatory environment matters for innovation

2.2.2Experimental approaches to regulation 2.3Innovation ecosystems across the EU 2.3.1Innovation divide 2.3.2Interregional collaboration across the EU research and innovation ecosystems 2.4Deep tech talents 2.4.1EU international and intersectoral circulation of talents 2.4.2EU investment in talent and EU labour market trends 2.5Data Informed Policy and Policy Support 2.5.1Data and monitoring for innovation policy 2.5.2Design, implementation and governance 2.5.3Innovation procurement 1Context Europe is facing global long-term challenges such as climate change, loss of biodiversity, ageing population, declining productivity growth and increasing inequalities. Unless these challenges are effectively addressed, they will affect the wellbeing of Europe’s population and reduce our choices for the future. Innovation is vital to tackle these challenges. It results from complex relationships among actors in the innovation system, which includes enterprises, universities and research performing organisations, such as government institutions and research and technology organisations (RTOs). Europe needs innovative solutions in areas like health, digital technologies, space & defence, industrial transformation, resilient societies, natural resources, energy, mobility, environment, circularity, food, low-carbon economy and security. For example, the success of our ambition to reach the net-zero emission objective by 2050 crucially hinges on development and widespread use of new technologies. Innovative solutions – including as regards product, organisational, process or social innovation – also enhance both economic and environmental efficiency while developing new sustainable, circular and inclusive ways to satisfy human needs and wellbeing. As a result, innovation is at the core of the sustainable development and competitiveness of our economy and supports the creation of new and better jobs and the development of knowledge-intensive activities. Overall, innovation is key in a global context that can accelerate the transition to sustainable development, while improving our well-being, reducing inequalities and ensuring longer-term prosperity. 1.1Innovation in EU policy The EU has recognised the importance of new knowledge and breakthrough innovation for the green and digital transformation that is underway. Innovation policy has been a subject of Commission initiatives in its own right, but has also been addressed in the frame of the work on the European Research Area (ERA), which aims to create a single EU market for research, innovation and technology. Moreover, due to the cross-cutting role of innovation, it is also addressed in a number of sectoral and other cross-cutting policies, including the European Green Deal, digital, economic and education policy and global issues. 1.1.1Innovation policy: a historical perspective While the roots of the EU’s engagement with innovation policy go back to the 1950s and 1960s, the policy field took centre stage in the context of the Europe 2020 Strategy. Launched in 2010, in the midst of the financial and economic crisis, the strategy aimed at setting Europe back on track for “smart, sustainable, inclusive growth”. One of the seven flagship initiatives announced as part of the Europe 2020 Strategy was the Innovation Union. This was the first time the European Commission had presented a comprehensive innovation strategy. It aimed to improve conditions and access to finance for research and innovation and to ensure that innovative ideas are turned into products and services that create growth and jobs. Progress tracked by the annual State of the Innovation Union Reports showed that by 2015, the Innovation Union had succeeded in introducing a more strategic and broad approach to innovation, building momentum and both mobilising stakeholders and mainstreaming innovation on different policy levels (European, national, regional). In 2014, this approach was complemented by the Communication on research and innovation as sources of renewed growth. Noting that the EU had increased its funding for research and innovation in its budget 2014-2020, but that several Member States had cut funding due to their fiscal consolidation efforts (following the global financial and economic crisis), the Communication aimed at enhancing research and innovation as drivers for renewed growth by “raising the quality of investments” and strengthening the overall innovation ecosystem. Building on this, the Commission put forward a renewed European agenda for research and innovation in 2018 setting out concrete actions: it aimed at ensuring essential public investment and stimulating private investment, making regulatory frameworks fit for innovation, making Europe a frontrunner in market-creating innovation, setting EU-wide research and innovation missions, supporting rapid dissemination of innovation and uptake throughout the Union, and investing in skills at all levels and empowering European universities to become more entrepreneurial and interdisciplinary. The work of advancing the European Research Area (ERA) creating a single EU market for research, innovation, and technology also made important contributions to strengthening innovation in Europe. First launched in 2000, ERA was at the heart of the Europe 2020 Strategy and the Innovation Union flagship. In 2012, the Commission stressed the need to reinforce ERA notably by focusing on the role of knowledge for innovation. It put forward the objective of reducing brain drain, especially from weaker regions, and reducing the wide regional variation in research and innovation performance, with the goal of achieving excellence across the whole Union through smart specialisation. This approach links innovation policy with regional policy. It aims for regions to develop smart specialisation strategies identifying the areas that offer regions the best chance of strengthening their competitiveness. It promotes more effective use of public funds while stimulating private investment to reach a critical mass of research and development activities as well as innovation resources. In 2020 and twenty years after ERA was first launched, the Commission’s Communication A new ERA for Research and Innovation took stock of achievements and persisting shortcomings as well as identified new challenges for research and innovation policy such as the green and digital transition (twin transition) and recovery from the COVID-19 pandemic. To meet these challenges, the Commission suggested to prioritise investments and reforms (including reaffirming the target of 3% of EU GDP to be invested in R&D) and to increase competitiveness as well as the speed and depth of the recovery; to aim at making research and innovation systems across the EU excellent and stronger; to improve how research and innovation results are translated into the economy; and by deepening ERA by moving from a policy coordination approach towards deeper integration between national policies. In November 2021, the Council adopted conclusions on ERA governance structure and the ‘Pact for research and innovation in Europe’, thereby completing a deep reform of ERA.

As this short overview has shown, the toolkit of EU innovation policy has expanded over the years and the institutional landscape has changed with it. With its Innovative Europe pillar, Horizon Europe has given rise to both existing and new tools to support start-ups, scale-ups and Small and Medium-Sized Enterprises (SMEs). The European Innovation Council (EIC), newly established in 2021 and with a budget of €10.1 billion, aims to support innovation throughout the whole innovation lifecycle, from the early stages of research to proof of concept, technology transfer, and the financing and scaling up of start-ups and SMEs. The European Institute of Innovation and Technology (EIT) took on additional tasks, building on its well-established and robust pan-European ecosystem, by establishing new Knowledge and Innovation Communities (KICs) such as in the area of culture and the creative sector, putting more emphasis on addressing regional imbalances, and looking at increasing the entrepreneurial and innovation capacity of higher education institutions. Via the European Innovation Ecosystems initiative of Horizon Europe, the EU also aims to create more connected and efficient innovation ecosystems to support the scaling-up of companies, encourage innovation and stimulate cooperation among national, regional and local innovation actors 1.1.2Innovation and EU policies Next to innovation policy in its own right and the work on the ERA, innovation is also a key element in many policy areas. Recent noteworthy examples include: ·European Green Deal: the need for boosting investment and innovation is widely recognised in order to achieve the objectives of the European Green Deal, which is the overarching EU policy driving the green and digital transition. To facilitate new technologies, sustainable and circular solutions and disruptive innovation, the Commission will use the full range of instruments under the Horizon Europe programme as well as four ‘Green Deal Mission’. Furthermore, the Fit for 55 package foresees using revenues and regulations to mitigate the impacts of the green transition, while boosting innovation through the new Social Climate Fund and enhanced Modernisation and Innovation Funds.Moreover, the Zero Pollution Action Plan, the Circular Economy Action Plan and the Biodiversity Strategy set out the importance for innovation to achieve their ambitious objectives and the proposals prepared in the context of these policies aim at boosting innovation. ·Europe’s Digital Decade: in 2020, the Commission presented its approach to the digital transformation and, as follow-up, in 2021 it set common digital targets for Europe, proposing a governance mechanism and new instrument to create multi-country projects to achieve them by 2030. Moreover, it also addressed the role of key digital technologies, including cutting-edge and disruptive ones, such as Artificial Intelligence (AI). The Commission also highlighted the role of the Recovery and Resilience Facility (RRF), Digital Europe Programme and Connecting Europe Facility Digital Programme for the digital transition and for financing investments in innovation and deployment of innovative digital solutions, putting forward concrete proposals, including making use of European Digital Innovation Hubs (EDIHs) to support SMEs in their innovation activities. ·Economic and industrial policy: in light of the effects of the COVID-19 pandemic, the Commission published an update of its industrial strategy one year after its initial publication in 2020. Reiterating the “fundamentals of industry – innovation, competition and a strong and well-functioning single market,” it highlighted the role of SMEs as important vehicles of innovation, the effects of regulation and competition rules on innovation, and the tool of innovation procurement. Moreover, it identified inter alia an innovation toolkit – not only higher R&D investments – but also the pooling of public and private resources via Important Projects of Common European Interest (IPCEIs) in areas where market actors alone cannot deliver breakthrough innovation, the increasing use of innovation procurement, or the use of EDIHs. The EU has recognized the special role of SMEs, start-ups and scale-ups as particularly prone for innovative business models and new technologies. Key actions in support of SMEs include increasing the number of Digital Innovation Hubs, engaging with Member States to share and adapt best practices to accelerate growth of high-tech SMEs and start-ups, and establishing an SME IPO fund supporting SMEs through and beyond the listing process. In its landmark paper, the ESIR Expert Group reflects on the future of industrial policy in Europe by highlighting research and innovation as drivers for a transition to a sustainable, human-centric and resilient European industry, moving the focus from shareholder to stakeholder value, with benefits for all concerned. ·Education: the EU has recognised that education and innovation interact in many ways. In response, policy documents have focused on the importance of education, training, lifelong learning and digital skills for economic growth and innovation, the positive role innovation can play for education, the modernisation of higher education, and the way that innovation and technological progress reshape society, the labour market and the future of work. ·Global affairs: seeing itself as a global leader, the EU presented its Global Approach to Research and Innovation in 2021. Noting that global competition was increasing, with other major countries spending more on science than the EU, and geopolitical tensions rising, it pointed to the fact that the EU’s prosperity and economic competitiveness are depending on its ability to autonomously source and provide its citizens with crucial technologies and services that are safe and secure, including in space and defence sectors. After Russia’s unjustified and unprovoked aggression against Ukraine, but in a similar vein, the EU in its Strategic Compass for Security and Defence pointed to the need to react to the way that emerging and disruptive technologies are re-shaping military affairs and defence markets. It emphasized the need to “stimulate investments and innovation to jointly develop the necessary capabilities and technologies” by drawing on larger research and innovation efforts, but also by establishing a Defence Innovation Hub within the European Defence Agency (EDA) or by developing an EU Defence Innovation Scheme to accelerate security and defence innovation. The Strategic Compass also highlighted the additional efforts needed in reducing strategic dependencies and enhancing Europe’s technological sovereignty. 1.1.3Towards a coherent and joined-up approach As the above overview has shown, innovation policy is a crucial policy area with significant EU initiatives and investments. This is complemented by the work on ERA aiming to build a true European single market for research and innovation. Innovation is also crucial to achieving other EU policy priorities, first and foremost the green and digital transition, but also supporting other sectoral Commission initiatives. While these often draw on Horizon Europe, they also propose their own instruments and investments, thereby contributing to the larger EU innovation policy in their own right. This raises, however, questions with regard to policy coherence and synergies: one goal of the new European Innovation Agenda is thus to bring together the various policies, investments and instruments in a coherent and joined-up approach in order to drive systemic change and deliver real impacts across the whole Union. To provide further evidence for this, the next section will take stock of the EU’s innovation performance in comparison with other major global innovators, across Member States as well as in terms of key outputs and economic results. 1.2EU innovation performance 1.2.1European innovation scoreboard EU’s innovation performance has been increasing over recent years. The latest edition of the European Innovation Scoreboard shows that this performance has increased by 12.5 percentage points since 2014, particularly due to strong performance increases in broadband penetration, venture capital (VC) investments, and international scientific co-publications. In terms of EU performance change in 2021 relative to 2014, the EU performs the best in the dimension of digitalisation with a performance of 38% above the EU average in 2014, followed by the dimension of innovations (+37%) and linkages (+35%). These dimensions comprise indicators such as broadband penetration, share of SMEs product and business process innovations and share of innovative SMEs collaborating with others. In comparison with 2020, the EU improved the most in the innovators dimension from a score of less than 110 to 137, due to recent positive trends related to shares of innovative SMEs. In individual indicators, the EU experienced the largest performance improvement in venture capital investments, which increased by 68% compared to the 2014 average. Figure 1. European Innovation Scoreboard – change in 2020 and 2021 compared to 2014 Source: European Innovation Scoreboard 2021. However, in global terms, the EU continues to lag behind a number of key innovators such as Japan, the United States and South Korea, mainly due to a poorer performance as measured by patent applications and business expenditure in R&D. Between 2014 and 2021, the EU has improved its relative position compared to six of other global players: the performance gap with Australia and Canada has become smaller and the performance lead over Brazil, India, Russia and South Africa has increased. The EU has seen a worsening of its relative position towards four of its global competitors: the performance gap with Japan, South Korea and the United States has increased. The EU is still ahead of China but its performance lead has become smaller. Figure 2. European Innovation Scoreboard – Global Performance Source: European Innovation Scoreboard 2021. Note: coloured columns show performance in 2021 relative to that of the EU in 2014. The horizontal hyphens show performance in 2020 relative to that of the EU in 2014. Grey columns show performance in 2014 relative to that of the EU in 2014. For all years, the same measurement methodology has been used. The dashed lines show the threshold values between the performance groups, where the threshold values of 70%, 100% and 125% have been adjusted upward to reflect the performance increase of the EU between 2014 and 2021.

The distribution of EU countries across the ranking indicates an innovation gap between Northwest and Southeast Member States (see also Section 2.3 on ecosystems). Sweden is the EU most innovative country, followed by Finland, Denmark and Belgium (‘innovation leaders’). Romania, Bulgaria, Latvia, Poland, Slovakia, Hungary and Croatia show a weaker innovation performance (‘emerging innovators’). Figure 3. European Innovation Scoreboard 2021 Source: European Innovation Scoreboard 2021. Note: coloured columns show countries’ performance in 2021, using the most recent data for 32 indicators, relative to that of the EU in 2014. The horizontal hyphens show performance in 2020 using the next most recent data, relative to that of the EU in 2014. Grey columns show countries’ performance in 2014 relative to that of the EU 2014. For all years, the same measurement methodology has been used. The dashed lines show the threshold values between the performance groups, where the threshold values of 70%, 100% and 125% have been adjusted upward to reflect the performance increase of the EU between 2014 and 2021. 1.2.2Industrial R&D and the global tech race In the COVID-19 crisis context, the latest R&D figures from the Industrial R&D Scoreboard show the resilience of industrial R&D investments as key for recovery and their potential for industrial transformation towards the green and digital economy. However, the Scoreboard also shows that the crisis further shaped the global tech-race in favour of US and China, for which the R&D values have grown, while the EU’s value has not. This is due to increased demand for ICT and health solutions, where these competitors have gained strength in the past decade, together with pressure on the EU Automotive stronghold via mobility restrictions and the need for a profound transition due to the Green policy agenda (Figure 4). Global R&D growth was driven by the ICT services sector (15.5%), followed by the health and ICT producers sectors (12.8% and 5.7% respectively). Most other sectors showed a decrease in R&D investment, particularly those hit hard by the crisis, i.e. aerospace & defence (-17.0%) and automotive (-4.3%). The chemicals sector reduced R&D by 3.4%, continuing the negative trend observed in the past few years. Figure 4. R&D investment growth 2019-2020 by sector and selected region/country. Source: The 2021 EU Industrial R&D Investment Scoreboard, European Commission, JRC/DG RTD. Note: R&D 2020 growth rates have been computed for 399 EU, 776 US and 597 Chinese companies for which data are available for both years 2019 and 2020. Sectors ordered from left to right in terms of overall R&D investment in 2020. Comparing the 2016 and the 2021 Scoreboard values, the most important development in the global R&D ranking is the increased presence of high-tech companies. There are 779 US-based, 401 EU-based and 579 China-based Scoreboard firms. While the EU maintains a higher share of R&D compared to China (€184.1bn vs €141bn), the number of China-based firms increased very significantly through the addition of 270 companies to the 327 included in the 2016 Scoreboard. Overall decreases in the number of firms from the EU, the US and Japan are of similar magnitude, but their mix is least concerning for the US, which managed to increase its presence in two of the key global sectors, i.e. health industries and ICT services, thanks to its sustained investment in software, internet and computer services technologies as well as in pharmaceuticals and biotechnology. The EU lost both R&D and number of companies in all four key sectors, slightly in ICT and health, more in automotive. However, it increased in industrial machinery and general industrials, which are two sub-sectors that encompass a number of medium-low and medium-high tech industries and some more or less knowledge intensive services – all these are included more generally in the group of “Industrials”. Scoreboard R&D is highly concentrated in four major sectors accounting for 77.4% of global R&D in the Scoreboard: ICT producers (22.9%), Health industries (20.8%), ICT services (18.6%) and Automotive (15.2%) (Figure 5). This concentration is due to the structure of the industry in each country/region which evolve on a rather long-term basis. Besides, both the EU and US have experienced a slower structural transformation than emerging economies. This means there cannot be “business as usual” in the EU, and the transformation of our industry cannot be resolved by young firms alone. Consequently, beyond start-up and scale-up financing, integrating high-tech in medium tech sectors (in which the EU has an excellent basis) is a specific policy challenge in industrial transformation. It calls for special strategies (e.g. including skills, technology infrastructures etc.) for R&I as well as to manage the uptake and deployment. An example could e.g. be to strengthen digital capacities in order to capitalise on the existing strengths and to accelerate the benefits of digitisation (e.g. Internet of Things developments, AI with a purpose, using AI in R&D, innovation through high computing power, smart and flexible manufacturing). Figure 5. R&D intensities by sector group and selected region/country. Source: The 2021 EU Industrial R&D Investment Scoreboard, European Commission, JRC/DG RTD. The Scoreboard also shows that the EU companies are among the global leaders on high-value green patents and green patents in energy intensive industries. However, specific efforts will be needed to pursue the requirements of the European Green Deal as well as to sustain leadership and remain competitive on global markets. As described above, China has increased its competitive position especially in the digital sphere, but the R&D-driven Made In China 2025 plan also focuses on the green economy, e.g. energy- and material-efficient production, and the establishment of a circular economy. 1.2.3Innovation output According to the Innovation Output Indicator, Ireland, Finland and Sweden were the top three EU countries in terms of innovation output in 2020. The indicator measures the extent to which ideas from innovative sectors reach the market, providing better jobs and making Europe more competitive. While Ireland underperforms in the component of patent applications, it is the top performer when it comes to trade in knowledge-intensive services and innovativeness of high-growth enterprises. Finland and Sweden, on the other hand, are very strong in terms of patent applications. Conversely, Romania, Lithuania and Croatia reported the lowest performance in 2020. Between 2011 and 2020, the innovation output improved in 22 out of the 27 EU Member States, especially in Portugal, Ireland and Finland. Performance declined slightly in Germany, Denmark, Slovakia and France, and stagnated in Czechia. The strong progress of Portugal was mainly due to a significant increase in employment of fast-growing enterprises. According to the Innovation Output Indicator, the EU is lagging behind the United States and, in particular, Japan. These results are mainly due to the EU weak performance in patent applications, employment in knowledge-intensive activities, and trade in knowledge-intensive services. Figure 6. Innovation Output Indicator, 2011 and 2020

Source: European Commission, DG Joint Research Centre. Note: For the EU, two sets of values are available: values for worldwide comparison and values for European comparison. The values for worldwide comparison, which exclude trade within EU countries, are shown on the graph. The value for European comparison for 2020 is 105.2. The EU’s share in the patent applications worldwide has declined to roughly 20% in 2018, compared to 2000. Around 80% of the patent applications filed under PCT come from Japan, China, EU and the United States. However, the distribution of the shares among these four regions has changed over time. While the EU and the United States accounted, respectively, for 31% and 38% of world’s patent applications in 2000, their share declined to 19% and 22% in 2018. China is the country with the largest increase over time, especially after 2008, overtaking both the EU and Japan in 2017. If the trend continues, China will overtake the United States in the coming years. The rise of China, Japan and South Korea in the patent applications, was at the expense of the United States and the EU in terms of world shares. Figure 7. World shares (%) of patent applications filed under PCT, 2000-2018 Source: Science-Metrix based on PATSTAT (EPO) database. Like in the overall innovation activity, there exists a clear geographic divide in the EU in terms of patenting activity. In the EU, Germany accounted for more than 40% of the patent applications filed under the Patent Cooperation Treaty (PCT) in 2018. France came second, but at a distance, with a share of 17%, followed by Italy (8%) and Sweden (7%). Patent applications in the EU are considerably more concentrated than scientific publications, with 95% of the patent applications coming from only ten Member States. However, Southern and Eastern EU Member States like Portugal, Italy, Spain and Poland, increased their share between 2000 and 2018, while the shares for countries like Germany, Netherlands, Sweden and Finland decreased. The EU applies for comparably more patents in the medium and low-tech sectors, in particular the automotive and machinery sectors. China and the United States apply for comparably more patents in high-tech, such as the pharmaceutical and other chemistry sectors (polymers, materials or nano-technology) and knowledge-intensive services, like the IT sectors (despite the fact that knowledge-intensive services represent a very low worldwide share in patents). Japan, on the other hand, appears to be strong mainly in the medium-tech sector. The EU is the top worldwide patent applicant in the fields of climate & environment (23%), energy (22%) and transport (28%). However, it has experienced significant losses in terms of world shares in these fields between 2008 and 2018. The biggest decline is in transport, with minus 11 percentage points (p.p.), despite the increase in the absolute number of patent applications over the same period. The United States, while maintaining leadership in the fields of health and food & bioeconomy, witnessed an even stronger decline in their shares in world patents, especially in security (-15 p.p.), health (-14 p.p.) and energy (-13 p.p.). Conversely, China increased its world share in all fields. However, China only tops the rank in security, with an impressive increase of more than 28 p.p., from 3% in 2008 to 31% in 2018. China’s performance also improved significantly in the energy sector, with an increase of more than 17 p.p. Japan, despite being weaker in scientific production (based on scientific publications), stands out strongly in technology output, with important shares in the societal challenges of health, energy and transport. The EU lags behind the US and China in terms of patent applications in digital technologies. The EU’s share in digital patents has remained stable since 2012, while the US share kept increasing over time, thereby widening the gap between the two economies (EIB, 2022). Although the EU is still ahead of China, Chinese investments in new digital technologies have significantly accelerated over the past ten years. This pattern is also confirmed by an analysis of patent data delving into the uptake of advanced digital technologies such as Artificial Intelligence (AI). An analysis of AI-enabled innovations in such critical economic sectors as health, mobility and manufacturing shows that the US and China vastly outperformed the EU in number of patents filed. For the AI-related patents in these sectors, China is the larger contributor, overtaking also the US. Similarly, the EU lags behind the US in terms of investments in the development and diffusion of AI. In 2020, the US invested EUR 21.2 or about twice as much as the EU in AI-related R&D, data and equipment and intangible assets. More efforts are also needed to bridge research with innovation and marketable solutions. The comparably low performance of the EU in patent applications and share of high-tech exports (Figure 8), stands in contrast with its large qualified workforce, strong level of collaboration between academia and business sector, and significant scientific production. This calls for addressing deficiencies by promoting a culture of knowledge valorisation in its R&I system, ensuring that the knowledge-based institutions know how to manage their intellectual capital, and by improving the links between academia, industry, citizens and policymakers. Figure 8. Knowledge valorisation approach, latest available year (EU=1) Source: Science, Research and Innovation Performance of the EU 2022. Note: data for USA and China relative to EU, which is normalised to 1. 1.2.4Startups, scaleups and unicorns Venture capital backed start-ups and scale-ups represent a key driver of economic growth and job creation, playing a critical role in fostering innovation. Such start-ups and scale-ups foster aggregate investment activities, in particular in intangible assets. These companies report on average significantly higher investment levels per employee than older firms. Furthermore, they are also catalysts for innovation and generate spill-over effects that benefit the society at large. These start-up and scale-up companies offer new products and/or services, new delivery modes, and also carry new ideas when it comes developing new ways of generating revenues from products and services sold, and to branding and advertisement strategies implemented on the market. In 2019, the share in total employer enterprise of a much broader category of start-ups (i.e., newly created firms) in EU ranged between about 14% (Belgium) to about 42% (Sweden). Compared to 2012, the number of such firms increased in several countries, notably in Belgium, Croatia, Estonia, Hungary, Malta, Poland, Portugal, Romania and Spain. Croatia and Poland are the Member States that experienced the largest increase over the period considered, with the share of start-ups almost doubling compared to 2012. On the contrary, Latvia experienced a significant contraction, reporting almost 50% less young enterprises than in 2012, followed by Denmark with -20%. Figure 9. Share of start-ups up to 5 years old in total employer enterprises between 2012 and 2019, per Member State Source: Science, Research and Innovation Performance of the EU 2022 based on Eurostat [bd_9fh_sz_cl_r2] Note: (1) Data in 2012 not available for FR, DE, EL, IE, SK, SE, UK. (2)Data for CY is not available.

Innovative start-ups play a pivotal role in addressing the challenges of the twin transition. In order to meet its policy objectives, the EU calls for an acceleration of the development and diffusion of innovative ideas and inventions, thereby supporting EU enterprises with high-growth potential. The EU aims at creating a fertile innovation landscape, for firms to scale-up and grow. The EU keeps lagging behind its main international competitors in terms of start-up ecosystems, with North America dominating the international scene, hosting 50% of Top 30 ecosystems in the world. Asia follows with 27%, after having outranked Europe between 2019 and 2021. Nevertheless, the EU performance is improving and, in 2020, the EU was in the lead in terms of emerging ecosystems, accounting for 37% of global emerging start-up ecosystems, followed by North America and Asia, with a share of 30% and 19%, respectively. The number of EU scale-ups has also increased in recent years, but the gap with the US remains. There are three times more tech scale-ups in the United States than in Europe. Despite the contraction experienced with the outbreak of the COVID-19 virus, European fast-growing companies showed a good degree of resilience to the COVID-19 shock: after a 20% contraction in the level of scale-up investment, in 2021 the European scale-up landscape has been able to almost double the investment value reported in 2019. European scale-ups are strongly concentrated in few countries, notably UK and France which account for about 50% of total scale-ups in Europe. In 2021, UK remains the leading country in terms of scale-up performance, counting around 33% of the European scale-up force. London maintains its record as Europe’s scale up capital, with 145 scale-up companies. Paris follows with 50 fast-growing firms, accounting for the 17% of total scale-ups in France. Berlin ranks third, with 25 scale-ups. EU underperforms as compared to its main international competitors in terms of number of deep-tech start-ups and unicorns firms. In 2021, the US reported almost seven times more unicorns than Europe, while China outperformed the EU by a factor of more than two (Figure 10). By the end of 2021, there were 742 companies worldwide with unicorn status. Of those, more than 60% (470) are based in the United States, more than one fifth in China (or 169), and about 9% (69) are in the EU. Furthermore, EU unicorns are typically older than US and Chinese ones. On average, it takes about ten years for an EU unicorn to reach the $ 1 billion valuation, against the eight and five years reported by US and China. One of the main reasons behind the gap between the EU and the US is the significant difference in the functioning of capital markets, which calls for the creation of a more efficient and diversified capital ecosystem enabling EU firms to scale-up in the EU. Furthermore, US funds alone are estimated to provide capital to around 75% of European growth companies, thereby making their relocation more likely. Figure 10. Number of unicorns across world regions per headquarter, 2021 Source: Science, Research and Innovation Performance of the EU 2022 based on CBInsights, updated up to Aug 2021. Note: The figure reports the number of unicorns headquartered in the different geographical regions. 2Key areas for EU innovation Improving EU’s innovation performance requires exploring the underlying drivers of such performance. Longstanding issues related to innovation, despite partial improvements not yet sufficiently evenly spread in the EU, call for action with renewed vigour, such as: (i) shortcomings in access to finance (in particular in relation to the above-mentioned scale-up gap), (ii) innovation-averse regulatory framework, (iii) a persistent innovation divide, accompanied by insufficiently connected innovation ecosystems, (iv) the need to improve innovation policy-making at EU and Member State level, and (v) difficulty in attracting and retaining talent. Figure 11. Five key areas for innovation 2.1Access to finance for deep tech scale-ups One of the main structural barriers faced by deep-tech and innovative companies is limited access to finance. First, the output from innovation activities has public good properties and is partly non-rival and non-excludable, i.e. other economic actors can benefit without paying for it. As a result, the risk of not being able to reap the full return on innovation investments may discourage investors from allocating funds to R&D-intensive firms. Second, innovation activities typically result in the production of technological knowledge, which is a non-tangible asset. As such, it cannot be easily deployed or used as collateral to obtain financing. In addition, innovation projects are typically riskier as they can also lead to negative outcomes. The uncertainty naturally embedded in innovation activities typically leads to high-risk premia in financing costs or financial frictions that limit firms’ abilities to secure financial resources from external investors. The short-term orientation of many financial investors constitutes another constraint to innovation investments. The declining trend in innovation investment observed in Western countries in the last decades can be partially attributed to the increase of short-term investment in the private sector. “Patience” in innovation investments is a key ingredient as innovative activities typically take time to deploy their results in terms of both market products and financial returns. 2.1.1Limited EU private investment and venture capital Equity investments are critical for innovative start-ups to grow and reinforce a firm’s development path at different stages. Europe is amongst the fastest growing regions in private capital investment. Between 2016 and 2020, it experienced a faster growth than China and the US, albeit from a lower base. European startups also accounted for 33% of all capital invested globally in rounds of up to USD 5 million compared to 35% for the US. In 2021, private equity (PE) investments in EU portfolio companies experienced a significant increase, after the mild contraction reported in 2020. Investments from PE funds located all over the world (including Europe) to portfolio companies based in the EU increased by about 41%, from € 64.3 billion to € 90.8 billion. Venture capital (VC) is a type of private equity investment focusing on start-up companies with high growth potential. VC investment positively affects the growth of target companies, in terms of both total assets and number of employees. In addition, VC support is not limited to the provision of financial resources, but may also include management advice, technical assistance, networking and expertise on supply, production and sales/marketing. Private equity and venture capital can provide a significant contribution to the financing of the green transition. Technological innovation to decarbonise the EU’s energy system is considered a key enabler of the net-zero targets. Equity finance to European innovative firms in the field of environmental technologies has already increased in the recent years, and continued to grow steadily during the COVID-19 period. Recent research documents the attractiveness of green patenting for venture capital investment over the medium term in Europe, which is suggestive of a strong potential for facilitating the adoption and diffusion of environmental technologies. Venture capital in the EU is mainly concentrated in a few EU Member States that are either ‘innovation leaders’ or ‘strong innovators’ as classified in the European Innovation Scoreboard. VC investors are often regional actors or appear to focus only on some European regions and countries, thereby limiting the capacity of raising capital from across the entire Union. Most of the VC investments are concentrated in a few EU countries, such as Germany and France (approximately € 3.8 billion and € 3 billion, respectively), which altogether received about 46% of VC financing in 2021. The Netherlands and Spain rank third and fourth in terms of absolute amount of VC investments received, with about € 1.8 billion and € 1.3 billion, respectively. The rest of EU countries received a significantly lower proportion of VC financing, pooling together about € 4.1 billion, (approximately 27% of the overall VC resources directed to EU companies). When considering countries’ economic size, VC investments represent only a tiny percentage (<0.5%) of EU Member States’ GDP. VC investments are mainly allocated at the domestic level (i.e. the investor(s) and the target firm(s) are based in the same country), with just a fifth of all transactions involving investors that are all foreign with respect to the target firm, suggesting that the geographical proximity between venture capitalists and VC-backed firms matters. Nevertheless, deals with multiple investors based in different countries are on an upward trend worldwide (50% of total investments). When considering the EU Member States, the level of VC investments coming from foreign investors is higher than that reported in the United States. However, 40% of EU investments keep occurring domestically, which is a sign of the integration of the EU market.

Overall, VC investments in EU companies increased since 2013 onwards. In 2021, VC investments almost doubled as compared to 2020 and reached about € 15.2 billion. Differences are observed across different development stages. VC capital financing targeting firms at the seed stage slightly increased after having remained more or less stable between 2017 and 2020. Financing allocated to later-stage venture increased considerably, raising from € 2.9 to € 9.2 billion between 2019 and 2021. Investments in start-up stage also recorded a positive performance, increasing from € 4 billion to € 5 billion over the same period (Figure 12). Figure 12. VC investment in EU portfolio companies by development stage, 2007-2020 Source: Science, Research and Innovation Performance of the EU 2022 based on Invest Europe, 2021. Note: Data are measured following the market statistics approach, an aggregation of the figures according to the country in which the investee company is based, regardless of the location of the private equity fund. At the European level, this relates to investments in European companies regardless of the location of the private equity firm. In the United States, almost seven times more venture capital funding is raised than in the EU. There is little to suggest that this gap will reduce in the near future. Even though funds raised in the EU have increased since 2013, reaching values above pre-crisis levels (rising from € 2.3 billion in 2013 to € 10.2 billion in 2020), venture funds raised in the United States have also risen from € 15.8 billion in 2013 to about € 70 billion in 2020 (Figure 13). The financing gap between the US and the EU is particularly striking at the scale-up stage, with US companies receiving on average significantly larger funds than EU ones. Figure 13. Venture Funds raised in Europe vs US, 2007-2020 Source: Science, Research and Innovation Performance of the EU 2022 based on Invest Europe, 2021. There exist a significant gap in late stage financing between the EU and US. In 2020, the number of funds above $ 100 million is US was significantly higher than that reported in the EU. The US-EU gap is particularly striking for funds of larger size, namely above $ 250 million, for which the US outperform the UE by a factor of more than five (Figure 14). This signals that despite the increase in late-stage financing experienced by the EU in the last years, a persistent gap still exists as compared to US. Figure 14. Number of venture capital funds raised by fund size (in USD million) in the EU and US in 2020 Source: Science, Research and Innovation Performance of the EU 2022 based on NVCA/Pitchbook as of 31/03/2021. There also exists an investment gap in unicorns companies between the EU and its international competitors. US reports the highest amount of investments in unicorns over the period 2008-2021HY, with an average funding per unicorn of € 138 million. China and EU show the same performance, with an average funding reported of € 125 million over the same period. Furthermore, European unicorns are mostly foreign financed. Between the period 2008-2021HY, three of the top 10 venture capital firms investing in European unicorns were located in US. Exit strategies represent another critical step in scale-up investments. Companies have three financing possibilities to scale-up: they can decide to rely on internal funds, to go public or to be fully or partially acquired. Initial Public Offerings (IPOs) represent the most common exit strategies available to private equity investors. Nevertheless, EU IPOs play a minor role in the financing of scale-ups as compared to the US. In the last two decades, the amount of divestment in the US was significantly higher than in the EU (Figure 15). In 2020, only 5% of the total divestment amount took place through IPOs in the EU, against 30% in the US. Figure 15. Share of IPOs in the total divestment amount (%) Source: Science, Research and Innovation Performance of the EU 2022 based on Ambrosio et al (2021). Tackling the scale-up financing gap remains a top priority in the EU. Ensuring that EU companies get access to the necessary amount of financing resources to scale up is critical to the achievement of several EU’s policy objectives. Tackling the EU scale-up gap would help the EU to secure its technological sovereignty and strategic autonomy. The innovation landscape is constantly changing, and European firms need funds to remain competitive on the global market. Additionally, leading companies in the emerging technological sectors are likely to play a key role in determining future industry standards. 2.1.2Tech funding in the (post-)COVID-19 pandemic period

Between 2020 and 2021, the EU funding environment has improved. Deep-tech investments world-wide increased significantly over the period 2016-2020. In 2020, the level of global investments in deep-tech stood at over $ 60 billion (Figure 16). Private investment in deep-tech from corporate investors is also on the rise. Between 2016 and 2020, deep-tech private investments coming from corporate investors increased from $ 5.1 billion to $ 18.3 billion. Over the period 2015-2018, US and China accounted for over 80% of global private financing in deep-tech companies. Nevertheless, between 2016 and 2020, private investment in Europe has experienced faster growth than China and US, reporting a compound annual growth rate of 49%, against the 34% and 28%, respectively. Figure 16. Deep-tech investments worldwide, 2016-2020 (USD billion) Source: Science, Research and Innovation Performance of the EU 2022 based on BCG and Hello Tomorrow (2021). Note: investments include private investments, minority stakes, initial public offerings and M&A. 2021 has been a positive year of the European tech landscape. The EU has gained ground in reducing its scale-up financing gap to the US, and the EU VC market has survived the COVID-19 pandemic without major disruptions, showing a significant degree of resilience. The set of public support measures taken in reaction to the pandemic played a key role in maintaining such a good performance, preventing the EU VC industry from experiencing serious damages. Investment growth in 2021 was largely driven by rounds greater than $ 250 million, which represent 40% of the total capital invested in Europe. Smaller rounds (below $ 5 million) also showed an increased compared to pre-pandemic levels. Nevertheless, keep accounting for a significantly smaller share (about 5%) of overall funding. Additionally, international investors are becoming progressively more involved in European tech fundraising activities. Although domestic funding remains the predominant source of finance in EU’s largest markets (notably, France and Germany), the internationalisation of European tech companies has been increasing in recent years. In 2021, the participation of US and Asian investors to European tech financing has increased considerably, especially in bigger rounds of fundraising. Between 2020 and 2021 the share of rounds above $ 250 million raised in Europe involving either US or Asian investors increased from 73% to 95%. The increasing presence of foreign investors has important implications for the EU VC market. VC foreign activities tend to increase the likelihood for foreign VC-backed companies to being acquired by a foreign firm or to exit in a foreign market. For instance, over 1 in 3 European companies founded after 2015 choose the US over Europe to list. Furthermore, the share of public EU tech companies valued over $1B that listed in US exchanges increased considerably overtime. For companies founded after 2015, the share is seven times bigger that that reported for companies funded before 2000. Although still lagging significantly behind the USA, the European scale-up landscape shows considerable potential and proved to be able to quickly react to the challenges posed by the COVID-19 pandemic. Innovative enterprises showed better adaptation capacity to the shock, confirming the role of innovation as key ingredient for economic resilience. Furthermore, since November 2021, the number of European unicorns has increased by more than 40%, asserting that the role of Europe as global tech player is increasing. The improved EU performance in terms of fast-growing companies is of key relevance in the aftermaths of the COVID-19 pandemic. High-growth firms have not only the potential to speed-up the recovery, but are also essential to progress in the green and digital transitions. As such, it is of paramount importance to seize the positive momentum, and continue strengthening the EU innovation landscape by improving companies’ financing conditions and make them more attractive to private investors. 2.1.3Funds that could be mobilised through the action on later stage venture capital financing Pension funds and insurance companies represent an important player in the EU VC landscape, although their involvement in European VC remain still highly underdeveloped as compared to US, where pension funds contribute to around 20% of the money flowing to venture capital funds. Such a difference reflects the higher reliance of retirement income on private savings in the US, leading to assets managed by pension funds considerably higher than in the EU. In 2020, US pension funds accounted for about 65% of the $ 35 trillion of total assets managed by pension funds at global level. On the contrary, EU pension funds and insurance companies have respectively $ 3 trillion and $ 10 trillion assets under management (AUM), very unequally distributed across EU countries. In 2021 capital raised from pension funds and insurance companies accounted only for about 7.9% of the total venture capital funds raised in the EU. On the contrary, VC raised from government agencies in the EU increased significantly between 2019 and 2020. In 2020, capital raised by governments accounted for about 31% of total VC funding in the EU. In 2021, VC capital raised by government agencies still accounted for the largest share of total VC funds raised in the EU. One of EU’s ambition is to convince these institutional investors to adopt a portfolio allocation more similar to the one of their US peers. Private equity, which includes VC, represents a small portion of European pension funds and insurance companies’ investments. In the EU in 2020 about 55% of pension funds’ AUM are invested in bonds and 20% in public equity. In 2020, pension funds yearly investments in European ventures amounted to only about € 700 million, corresponding to less than 0.018% of their total assets in the same year. If pension funds were to channel 50% of their private equity allocations per year to VC, about € 10 billion a year could be raised. In comparison to US figures, a target of 1% of European pension funds’ AUM to be allocated to VC by 2025 could mean mobilizing € 30 billion over three years, which would more or less double the EU VC market (in 2020, the total EU28 market was EUR 24 billion). Similarly, EU insurance companies have 9% of their AUM invested in equity, almost exclusively public equity. Private equity is a very small part of their investment portfolios (9% or USD 30 billion in the US). Given their more risk-averse nature compared to pension funds, a proportionate target of 0.15% of European insurance companies’ AUM could be set to be allocated to VC by 2025, arriving at roughly € 15 billion mobilized over three years. Summing up the funds that could be mobilized by European pension funds and insurance companies from 2023 to 2025, a total of € 45 billion could be achieved. Costs that could be saved through the action on listing European Commission’s internal assessments indicate that reductions in the complexity and length of prospectuses could cut costs by a quarter or more and amendments to the rules on inside information could lead to about 3% lower costs per annum from staying listed. Aggregate issuance costs are estimated to decline by € 67 million and ongoing costs by € 100 million. 2.1.4A fragmented financial market Despite these positive recent trends, EU’s capital markets remain considerably fragmented, constraining EU companies to mainly rely on domestic markets to meet their financial needs. This results into a heterogeneous degree of access to finance within the Union territory, as well as in different financing costs between EU countries. The EU capacity to attract cross-border/foreign investors is quite heterogeneous across Member States. Germany and France are the two EU countries with the highest capacity to attract investors in innovative firms, with a venture capital attractiveness score of 87.3 and 83.6, respectively (Figure 17). The Netherlands, Sweden and Denmark also perform quite well in the EU ranking with a score well above the EU average of 77.3. Southern and Eastern European countries are less good in attracting venture capital investors, with scores below the EU average. Croatia, Latvia, Lithuania and Slovakia are among the Member States with the lowest performance, with a score ranging between 53.1 and 47.5. Figure 17. The venture capital and private equity country attractiveness index per Member State, 2021 Source: Science, Research and Innovation Performance of the EU 2022 based on the Venture Capital and Private Equity Country Attractiveness Index 2021. Furthermore, bank loans remain the predominant financing instrument for companies in the EU, while equity capital and market based debt (corporate bonds) still play a minor role compared to other international economies. Traditional bank products, such as loans, credit lines and bank overdrafts continue to represent the most relevant sources of external finance for European enterprises. Alternative external resources such as equity investment keep playing a minor role, although remaining critical to help firms facing specific financial needs and challenges, notably riskier and long duration innovation processes. On average, EU firms make more use of debt finance to finance their innovation activities (9% against 4% using equity finance). Since innovative firms are typically active in intangible-intensive sectors, access to debt financing is challenging, as intangible assets are difficult to be pledged as collateral for bank lending Internal funding continues to be the primary source of innovation for all European businesses. Given the crucial role of intangible assets in knowledge-based economies, improving access to finance is essential to fully tap their growth potential. Intangible-intensive sectors have strong productivity potential, but typically face more financial constraints than the rest of the economy. As such, they would be the segments benefitting the most by further financial development, e.g. collateralisation. Less financial frictions would improve firms’ ability to finance their innovation activities, thereby advancing their productivity performance. External financing, plays a critical role in enhancing investment opportunities, but its usage remains limited to larger innovators with collateral, and innovative in-house competencies. Enhancing access to equity, especially for small innovative firms, is thus key to creating growth opportunities. Levelling the playing field for debt versus equity financing and the lack of appropriate tax incentive constitute another important constraint to innovation financing. In many EU corporate tax systems, interest payments on debt financing are tax deductible, while the costs related to equity financing are not. Such asymmetric tax treatment induces a bias in investment decisions, making debt financing more appealing despite the potential negative effects related to increasing companies’ debt levels, thereby leading to higher incidence of insolvency and negative spill-over effects for the EU as a whole. In 2019, total indebtedness of non-financial corporations amounted to almost € 14 trillion in 2019 (99.8% of GDP in the EU), and the debt to equity ratio was 53.3%. The COVID-19 pandemic exacerbated corporate financial vulnerabilities, causing considerable revenue losses and further debt accumulation

The tax induced debt-equity bias constitutes an important constraint to the creation of a strong equity market in the EU. This penalises innovative companies (especially start-ups and SMEs) which typically face higher constraints in raising the necessary resources to meet their financing needs. Addressing the higher cost of equity financing is of key relevance to boost EU innovation performance, calling for continuous efforts to minimise unintended distortions in companies’ investment decisions and facilitate innovative companies’ access to financing resources. Furthermore, persisting differences in national tax system can create unnecessary burdens for EU companies. Member States have the possibility to introduce measures at national level to mitigate the tax induced debt-equity bias. Country specific rules risk to further enhance the Single Market fragmentation, as multinational enterprises can afford tax-planning and relocate business centres, or companies may be tempted to base their investment decisions on the availability of debt-equity bias mitigating measures, and to create unnecessary compliance costs for businesses, thereby discouraging cross-border investments. The underrepresentation of women in the European VC landscape represents another major constraint to the development of a strong innovation ecosystem. The gender financing gap in Europe remains persistent. In 2020, only 1.7 % of the capital raised in European VC markets was captured by tech companies with only female founders. The difference between male-led companies and companies with mixed/female founders remains significant both in terms of capital and number of deals. In 2021, male-only firms accounted for respectively about 90 % and 84 % of capital and deals concluded, against 1.1 % and 5.4 % reported for women-led companies, respectively. The gap also remains huge when considering companies with male-female co-founders, which captured only 8.8 % of the capital raised in 2021. 2.1.5IP protection Strengthening intellectual property rights (IPR) protection has the potential to open new funding channels for innovative enterprises. IP protection typically provides companies with a competitive advantage, especially regarding technologies that can be copied once the product is on the market. IP strategies also enable start-ups and SMEs to expand their business by collaborating with partners, through participating in innovation projects, pairing with large companies to provide supplementary services, or licensing their technologies or brands to third parties. As such, a stronger IPR protection can serve as positive signalling mechanism to investors. Additionally, protected, valued and transferable IPR can increase collateral availability, thereby easing innovative firms’ access to finance. Young innovative start-ups and SMEs rely considerably on intangible assets, but typically lack tangible assets, which can more easily be pledged as collaterals to access external financing. Although the practice of using IPR to back loans is increasing, large firms appear to benefit more from this opportunity as compared to SMEs. One aspect hindering SMEs’ opportunities in exploiting IPR-backed loans relates to the significant capacity constraints SMEs face when applying for patent protection (e.g. payment of specific fees and burdensome administrative procedures, typically better handled by expensive patent consults). In this regard, policy interventions aimed at increasing the use of IPR-backed financing represent an important opportunity to enhance the availability of bank finance for innovative enterprises, thereby providing start-ups and SMEs with the same opportunities as larger firms to access a larger pool of financing resources. 2.2Framework conditions for innovation In order to ensure well-functioning markets that incentivise competition and innovation, thereby maximising the impact of EU R&I investments, Europe needs a fit-for-purpose, forward-looking and overall innovation-friendly regulatory framework. Regulation can be a powerful instrument to foster innovation in the EU. The emergence of new practices, technologies and business models and the acceleration of innovation call for more flexible and experimental approaches to regulation, such as the implementation of the innovation principle as well as regulatory sandboxes and innovation clauses. 2.2.1Regulatory environment matters for innovation Strong institutions help to generate a more innovative environment. Institutional quality is strongly associated with innovation capacity, and this relationship is confirmed for different countries. Respect for the rule of law, in particular independent, quality and efficient justice systems, effective anti-corruption structures, anti-money laundering and anti-fraud frameworks, are important factors of the business environment and of the functioning of the Single Market. In addition to the European Semester, the Commission’s Rule of Law Report also covers in one of its pillars the functioning of justice systems. Research shows the positive relationship between the Global Innovation Index , GDP per capita, and various measures of institutional quality: rule of law , regulatory quality and control of corruption . Regulation matters at all stages of the innovation process, but the relationship between regulation and innovation is complex. On the one hand, regulation can be a barrier for innovation when it is not properly designed or when it stifles competition. Ineffective regulation raises compliance costs, using entrepreneurs’ resources and time. Inflexible regulation or regulation that lags behind innovation cycles can for example prevent the commercialization of an innovative product or its scaling up. Prescriptive regulation may also not generate sufficient incentives for firms to seek improvement of their product or service beyond what is specified in the regulation. On the other hand, regulation can act as a major driver of innovation: it brings stability and certainty, which matter for investment and planning and enables firms to operate on safe legal grounds, but it can also create strong stimulus for innovation through standard setting or regulatory stringency. Regulation may also have impacts on innovation at the systemic level, when it shifts investment opportunities to different actors. This could occur for example in the context of the twin transition, supported by the European Green Deal and the Digital Decade priorities. Hence, regulation can be a powerful instrument to foster innovation in the EU. However, several factors can prevent this. The EU is faced with challenges common to other regulatory systems, e.g. how to ensure that regulation is agile enough to adapt rather than react to the pace of innovation; when and how to regulate disruptive innovation, while only limited evidence is available. In addition, EU-specific challenges may also come into play. These include the length of the legislative process, risks of market fragmentation if the same innovation is treated differently across Member States, and problems in national implementation of EU regulation (inadequate transposition or implementation, gold-plating, burdens or obstacles in the delivery phase of the legislation). These factors can also discourage investment and limit innovation. At the same time, regulation alone may not be sufficient. Innovation requires public buy-in and trust, with societal uptake of innovation being also a demand-side indicator of emerging regulatory gaps or deficiencies. When designing and evaluating regulation, the growing role of digitalisation in various sectors of the economy is not always reflected; the same applies to the increasingly data-driven nature of innovation. In some instances, the opportunities offered by digitalisation can facilitate the implementation of and compliance with existing rules, by reducing administrative burdens without affecting intended policy objectives. More importantly, digitalisation also matters for policy design and for identifying policy approaches that grant sufficient adaptability to accommodate innovation and fast technological change, where appropriate. Indeed, while digitalisation and technology are enablers of solutions, they may also be the sources of new risks, which also need to be assessed and understood. Recent efforts aim at reinforcing consideration of innovation, both in terms of possible impacts of policies on innovation, and the influence that innovation itself can have on the design and implementation of EU policies and legislation. In particular, DG Research and Innovation (DG RTD) is stepping up efforts within the European Commission to implement the innovation principle (see Box 1) at all relevant stages of policy-making and create future-proof framework conditions to achieve sustainable development. The innovation principle is an approach ensuring that the processes of preparing, revising and implementing EU legislation take into account emerging innovations that are in line with EU policy objectives, thus facilitating their development and adoption. This simultaneously requires policy to become more agile - able to anticipate, adapt and adjust to changing circumstances - while maintaining or introducing regulatory certainty and relevant legal protection where necessary. Box 1. The innovation principle At the EU level, the European Commission recognises the importance of regulation in stimulating innovation to support social, environmental and economic objectives. In this context, it applies an innovation principle, when preparing legislative initiatives. The innovation principle helps to ensure that EU legislation is analysed and designed so as to encourage innovation to deliver social, environmental and economic benefits and help protect Europeans. It supports the EU's better regulation approach to help enact smart, future-oriented regulation. The Commission mentions the innovation principle notably in its Communication on a Renewed Agenda for Research & Innovation, in the Single Market Communication and in the Communication on Artificial Intelligence. It also appears in the recitals of the Horizon Europe Regulation proposals. The 2019 Commission Communication on Better Regulation acknowledges the need “to have regulation that fosters and, at the same time, harnesses innovation to the benefit of the environment, the economy and EU citizens. The implementation of the innovation principle occurs by: using horizon scanning and innovative regulatory approaches to harness future technological advances and steer them in the direction of delivering on European Commission priorities; designing new legislation with innovation in mind, in particular through impact assessments; addressing perceived regulatory obstacles to innovative solutions through innovation deals and ensuring that evaluations consider whether regulations are fit for the future. In the context of the innovation principle, to clarify how existing regulatory requirements apply to innovative ideas, the Commission has also been piloting Innovation Deals to help innovators address perceived EU regulatory obstacles. Early results in pilots on batteries and water reuse suggest the experience can provide useful feedback to improve regulation and promote innovation. 2.2.2Experimental approaches to regulation By its very nature and speed, innovation may often call into question traditional approaches to regulation. This raises the broader question of how regulation could be made future-proof and fit for purpose to continue to be effective while meeting the desired policy goals in a fast-moving and increasingly complex environment. Experimental approaches set out in regulations, including the so-called ‘regulatory sandboxes’, are relevant in this context. When testing new solutions and alternative business models, accountability and the involvement of those who are impacted by the tested innovation are essential. Broadly speaking, a regulatory sandbox is a framework that enables the testing of innovations in a controlled real-world environment, under a specific plan developed and supervised by a competent authority. Sandboxes usually entail a temporary loosening of applicable rules, and feature safeguards to preserve overarching regulatory objectives, like safety and consumer protection. They are a relatively new practice in most regulatory systems and experience with implementation of such sandboxes is still limited. At EU level, initiatives paving the way for sandboxes include the Commission proposal for a regulation on Artificial Intelligence and the pilot regime for market infrastructures based on Distributed Ledger Technology (DLT), as well as a regulatory sandbox for blockchain solutions in collaboration with the European Blockchain Partnership and supported under the Digital Europe Programme. At national level, over half of the Member States have set up sandboxes and additional ones are in the pipeline. Applications of sandboxes are mostly in the areas of finance, transport and energy.

Closely connected to sandboxes are experimentation clauses: these enable authorities tasked with implementing and enforcing legislation to exercise a degree of flexibility in relation to innovative technologies, products or approaches, even if they do not conform to all existing legal requirements. Experimentation clauses can serve as the legal basis for sandboxes or simply allow for flexibility under certain circumstances. On 16 November 2020 the Council adopted a set of conclusions on the role of regulatory sandboxes and experimentation clauses in an innovation-friendly, future-proof, sustainable and resilient EU regulatory framework. In these conclusions, the Council affirms that regulatory sandboxes can offer significant opportunities to innovate and grow for all businesses, especially SMEs, including micro-enterprises as well as start-ups, in industry, services and other sectors. The conclusions also encourage the Commission to continue considering the use of experimentation clauses on a case-by-case basis when drafting and reviewing legislation, as well as to evaluate the use of experimentation clauses in ex-post evaluations and fitness checks on the basis of an exchange of information with member states. There are other experimentation frameworks without being a fully-fledged sandbox, such as test beds, living labs and digital innovation hubs that enable innovators to test and demonstrate new technologies and solutions. These controlled experimentation activities can also take place in real-world environments, allowing for early engagement with end users and relevant stakeholders, as well as with regulation. Smaller-scale experimentation frameworks particularly target start-ups and SMEs. These experimentation frameworks can at once support early uptake of existing regulation and provide evidence on new regulatory needs. ·In today's rapid development of science and technology, test and demonstration facilities are key to quickly turning research results into innovative products and services. A test bed is a set of entities, providing common access to physical facilities, capabilities and services required for the development, testing and upscaling of technology and advanced materials, e.g. in industrial environments. The objective of test beds is to bring technologies and advanced materials within the reach of companies and users in order to advance from validation in a laboratory to prototypes in industrial environments. ·Living Labs are collaborative initiatives to co-create knowledge and innovations. There is no commonly agreed definition but the European Network for Living Labs describes them as user-centred, open innovation ecosystems based on systematic user co-creation approach, integrating research and innovation processes in real-world communities and settings. Living Labs embed the notion of the quadruple helix, i.e. involvement of four major actors in the innovation system: science, policy, industry, and society. These actors come together in Living Labs and their interaction fosters collaborative innovation, validation, rapid prototyping and scale up innovations. Through its Living Labs programme the JRC is exploring the potential to extract regulatory insights from testing and demonstration of new technologies in a Living Lab environment. In this context the Commission also supports the creation of a network of 100 living labs experimenting and testing solutions for soil health in rural and urban areas. ·European Digital Innovation Hubs (EDIHs) funded by the new Digital Europe Programme provide ‘Test before Invest’ to SMEs as one of their main objectives. The group of services enabling test before invest may include: awareness raising, digital maturity assessment, demonstration activities, visioning for digital transformation, fostering the integration, adaptation and customisation of various technologies, testing and experimentation with digital technologies (software and hardware), knowledge and technology transfer. Special focus is given on the key technologies promoted in Digital Europe Programme: HPC, AI, and Cybersecurity. ·Furthermore, to embrace the transition towards low-impact green solutions, the industry is looking at R&I for new ways to power its activities and to reengineer its processes. The current speed of this industrial transformation is insufficient and EU policies should play a role in accelerating this transformation. To meet these challenging objectives, the EU INnovation Centre for Industrial Transformation & Emissions (INCITE) (see Box 2) will become, after the adoption of the new Industrial Emissions Directive, the first independent centre for identification and evaluation of emerging techniques with high potential for decarbonisation, pollution reduction and/or for increasing circularity in large agro-industrial installations. It will open the possibility to allow more time for operators to test and implement these techniques at full industrial scale Box 2. Instruments to accelerate the industrial uptake of innovation The Industrial Emissions Directive (IED) is the main instrument of the European Union to control the environmental impact of around 52 000 large-scale agro-industrial installations with high-pollution risk in Europe . This is done in an integrated manner, on a sector-by-sector basis and through the application of best available techniques (BAT). BATs are specified in sectoral reference documents, which also list promising emerging techniques that could become “a standard” in the future. In this way, the IED creates a direct link between technological innovation and the establishment of legally binding emission limits for industry. Experience shows that access to finance is only one element to succeed in innovation deployment. Another challenge is to pool the results of innovation into tangible and workable solutions that could promote emerging techniques and provide a convincing business case to the industry. The EU Innovation Centre for Industrial Transformation & Emissions proposed in the revised IED aims at filling this gap. INCITE will scout for emerging techniques worldwide, it will identify and evaluate new processes and techniques by assessing their Technology Readiness Level and environmental performance and, if they are deemed ready for use at an industrial scale within a short timescale, incorporate them in the Best Available Techniques framework. In addition, plant operators will be allowed up to two years instead of the current nine months to test emerging techniques within their own installations. During this time they will be allowed temporary derogations from selected IED permit conditions, subject to monitoring from permitting authorities. Frontrunners will also be allowed an additional 2 years to implement new environmentally better techniques (i.e. a total of 6 years) that INCITE has identified as being close to market deployment. This work is essential for an efficient deployment of breakthrough technologies, thereby minimising the risk of technological lock-ins or stranded technologies. The information collected and evaluated by INCITE will provide a sound, evidence-based technical basis for industry to develop site-specific Industrial Transformation Plans as part of their environmental management system. Operators of energy-intensive installations will need to do it by 2030. These Transformation Plans will show how each plant will contribute to achieving the EU’s 2050 zero pollution ambition, circular economy and decarbonisation objectives. Transformation Plans will promote transition pathways that create technologies favouring integrated solutions and will build on INCITE findings as decarbonisation and pollution reduction reinforce each other. INCITE will contribute towards putting the EU’s industry in the front-foot of industrial transformations, potentially gaining first-mover advantage and exporting the acquired know-how on emerging techniques. 2.3Innovation ecosystems across the EU 2.3.1Innovation divide Regional disparities in R&I performance remain deep across the EU. The Regional Innovation scoreboard 2021 uses 21 indicators at regional level on different aspects (framework conditions, innovative outputs, investments, impacts, etc.) to assess the performance in R&I of EU regions (NUTS 1 and 2 levels) relative to the EU average score. It demonstrates that there is a clear innovation divide across the EU as Europe’s highest performing regions are up to nine times more innovative than the lowest performing ones (Figure 18). Figure 18. Innovation performance of EU regions, 2021 Source: European Commission, (2022), The Eighth Report on Economic, Social and Territorial Cohesion based on Regional Innovation Scoreboard 2021. DG Regional and urban Policy, Publications Office of the European Union. Luxembourg Note: AT, BE, FR: NUTS 1. The technological output as measured by patents is concentrated in regions with a high share of manufacturing and with headquarters of large companies. The innovation divide across regions located in Western and Northern Europe and those in Central and Eastern Europe as well as with some Southern countries continues to be pronounced. Some of the least innovative regions in Portugal or Greece have increased the contribution to EU total patents applications over 2010-2018, but the regions that experienced the highest increases in their contribution to EU total patents are in Austria, Belgium and Germany, which are already amongst the top innovative regions. Figure 19. Total EPO applications (fractional count) per million inhabitants at NUTS 2 level, 2018 Source: DG Research and Innovation based on Science Metrix – European Patent Office. Scientific production measured by scientific publications shows a relatively dispersed pattern across the regions of the EU, although the divide is not as clear as, for example, in terms of overall innovation capacity (Figure 20). Many of the lagging regions, mostly in Eastern and Southern Europe, show an improvement of performance in scientific output over the 2010-2020 period even though the dispersion between European regions has jumped up during 2020, possibly due to the impact of COVID-19 crisis on scientific production. The production of high-quality publications continues to be highly concentrated in a relatively few regions. Hence, the 10% top cited publications are mostly produced in Western Europe, with a dominance of Dutch and Nordic regions (Figure 21).

Figure 20. Scientific publications (fractional count) per 1000 inhabitants at NUTS 2 level, 2020 Source: DG Research and Innovation based on Science Metrix - Scopus. Figure 21. Percentage of highly-cited publications (top 10%) at NUTS 2 level, 2018 Source: DG Research and Innovation based on Science Metrix - Scopus. Technology investments also tend to be geographically concentrated, raising the concerns of increasing inequality among regions and how to improve multilevel governance and synergies. Thus, policy interventions aiming at reinforcing and improving the functioning of local innovation ecosystems, particularly in less developed regions, are particularly important for achieving the twin transition, together with the interconnection of regional ecosystems and hubs. Over the 2015-2018 period, regional disparities in technological innovation have been on an increasing trend. The EU has experienced a convergence process in patenting activity in the beginning of the 2000s, but it has stopped in the middle of the 2010s and, since 2015, the gap between the most and the least innovative regions in terms of patent applications has widened (Table 1). As far as scientific publications are concerned, it appears that the convergence process, which was pronounced in the beginning of the 2000s, is still valid over the 2016-2020 period, but at a much slower pace than it was. Figure 22 also demonstrates that, over 2016-2021, the share of emerging innovators (the least innovative class) has increased in the less developed regions, meaning that more regions are lagging behind in 2021 compared to 2016. Less developed regions face indeed more difficulties in translating research results into innovation and the returns in terms of patenting on additional R&D investment tend to be lower than in other regions. Although there is convergence pattern among scientific publications, many disadvantages in less developed regions of Europe prevail and these are less capable of generating innovation from R&D inputs. Table 1. Annual growth between 2001 and 2018/2020 for research outputs (patent applications and scientific publications – fractional count) per groups of regions (NUTS 2 level) Annual Growth Patents per million inhabitants 2001-2005 2006-2010 2011-2014 2015-2018 Most performant regions (1st tercile) 1.1 -0.6 0.3 -3.6 Middle performers (2nd tercile) 4.5 0.6 0.7 -4.7 Least performant regions (3rd tercile) 16.2 1.7 5.3 -11.8 Patents 2001-2005 2006-2010 2011-2014 2015-2018 Most performant regions (1st tercile) 2.4 0.1 -0.1 -2.8 Middle performers (2nd tercile) 5.5 1.6 1.3 -2.4 Least performant regions (3rd tercile) 16.7 1.6 4.1 -12.6 Publications per million inhabitants 2001-2005 2006-2010 2011-2015 2016-2020 Most performant regions (1st tercile) 4.1 2.9 1.4 0.9 Middle performers (2nd tercile) 6 4.3 2.6 1.7 Least performant regions (3rd tercile) 10 9.7 4 2.1 Publications 2001-2005 2006-2010 2011-2015 2016-2020 Most performant regions (1st tercile) 4.6 3.3 2.1 1.2 Middle performers (2nd tercile) 6.5 4.6 2.4 1.3 Least performant regions (3rd tercile) 11.2 9.2 4.1 2.6 Source: DG Research and Innovation based on Science Metrix – Scopus and European Patent Office. Figure 22. Share of EU population by Regional Innovation Scoreboard category and regional level of development, 2021 and 2016 Rural and urban areas differ in the intensity of innovation as well as in the type of innovation. As illustrated in Table 2, urban regions are much more active in patenting and publications activities than rural or intermediate regions. In Europe, metropolitan regions gather 74% of patent applications in 2018, 84% of scientific publications in 2020, and 87% of highly cited publications. When it comes to the types of innovation, it appears that high-density areas are characterized by a higher degree of unconventionality in innovation, meaning that research activities and product innovations tend to be concentrated in large cities or more agglomerated settings, while process innovations and less technology-intensive activities tend to be more distributed in space. Besides, while rural regions more rarely produce learning related to R&D activities (“learning by searching”) they have a fundamental role in the other dimensions of learning (by doing; by using; and – in particular – by interacting).



Table 2. Urban-rural innovation divide in Europe Type of regions Regions predominantly urban Regions intermediate. close to a city Regions intermediate. remote Regions predominantly rural. close to a city Regions predominantly rural. remote Number of regions in Europe 240 464 48 265 150 Publications per million inhabitants 2020 (frac. Count) % change from 2014 to 2020 2078.9 + 6.46% 1145.2 +9.3% 400.5 +19.2% 397.7 +14.4% 302.9 +44.5% Share of publications 2000-2020 63.7% 30.5% 0.6% 4.2% 1.0% Average of Highly Cited publications (Top 10%) over total publications 2000-2020 0.086% 0.072% 0.063% 0.052% 0.06% Average of Highly Cited Publications (Top 1%) over total publications 2000-2020 0.008% 0.007% 0.005% 0.004% 0.005% Patents per million inhabitants 2018 % change from 2014 to 2018 132.4 -14.6% 104 -14.5% 31.3 -29.8% 65.8 -4.7% 30.7 -15.2% Share of patents 2000-2018 52.8% 36.1% 0.8% 8.6% 1.7% Share of patents cited at least one time over the total patents 2000-2018 17.4% 19.5% 14.8% 20.0% 21.6% Source: DG Research and Innovation - Common R&I Strategy and Foresight Service - Chief Economist Unit based on Eurostat and Science Metrix – European Patent Office and Scopus. Regions with lower innovation capacity tend to rely relatively more on government and higher education sectors for R&D investments, whereas strong/leading innovators benefit more from the business enterprise R&D investments. Interestingly, it seems that innovation leaders are also characterized by the highest share of investments in R&D coming from the government, but less from the higher education sector (Figure 23). Figure 23. Share of 2019 R&D investments per sectors of performance across EU regions classified according to RIS scores

Source: DG Research and Innovation based on Eurostat and the Regional Innovation scoreboard. Note: no data for BE, FR and NL. Institutional quality, a key determinant in the innovation capacity of regions, is high in the core of the EU, but with a high degree of regional variation and heterogeneity (Figure 24). Good institutional frameworks improve economic and innovation prospects as they reduce uncertainty on the appropriability of the returns on investment, which is already higher in the context of R&D and innovative activities. Besides, institutional quality ensures the effective and generalised protection of property rights, provides the public infrastructure needed for the diffusion and use of technology, allows for the effective control of corruption, and ensures the efficient delivery of public goods and services, including education at all levels. Figure 24. Quality of government across EU regions, 2021 Source: Charron, N., Lapuente, V., Bauhr, M. (2021), Sub-national Quality of Government in EU Member States, University of Gothenburg: The QoG Working Paper Series 2021:4. The fast pace of innovation dynamics poses new challenges on production systems of many less developed regions, which are often not sufficiently oriented towards knowledge intensive sectors as mirrored in their lower performance of their regional R&I systems (Figure 25). Many transition regions are characterised by low performance on R&I have also not done well as regards productivity growth. It has become increasingly clear over recent years that not all regions in the EU with a GDP per capita below the average are catching up. Iammarino et al. (2019) demonstrate that while economic activity and wealth have increasingly accumulated in large urban agglomerations, often capital cities, many areas have increasingly been caught in ‘development traps’. Since 2000, an increasing number of regions have experienced stagnating economic development in terms of GDP growth, productivity and employment after reaching a level of GDP per capita of 75–100% of the EU average. Many of these regions are less cost-competitive than less developed regions, characterised by the low cost of capital and labour, and by being less innovative or productive than more developed regions. Accordingly, their costs tend to be too high to compete with less developed regions and their innovation systems not strong enough to compete with more developed regions. Figure 25. Labour productivity (GDP per person employed), 2010 and annual real growth, 2010-2019, classified by regional development. Source: DG Research and Innovation based on Eurostat. Note: GDP per worker in current PPS. FR and PL NUTS2 regions not included. Remaining for long in a development trap is brewing increasing inequalities and geography of EU discontent. Subpar economic performances, lack of employment opportunities, and loss of competitiveness due to low productivity levels are causing social and political resentment towards what is increasingly regarded – justly or unjustly – as a system that does not benefit areas being left behind. 2.3.2Interregional collaboration across the EU research and innovation ecosystems Inter-regional co-patenting remains very limited in the EU, even if it has slightly increased from 1992 to 2016. Over 3/4 of collaborations on patents (co-patenting) takes place within the same region, somewhat less than 1/5 is inter-regional with stakeholders in other regions of the same country and only 3-5% is inter-regional across national borders (Figure 26). Still, there are some improvements in terms of inter-regional collaboration beyond national borders – the share from 3.2% over the 1992-1996 period to 5.4% over the 2012-2016 period. The importance of proximity goes beyond production of research and innovations, as it seems that knowledge diffusion also remains mostly national. For example, the EIB (2021) used the cross-country citation index, which measures how often countries refer to one another in relative terms, to demonstrate that most green knowledge stays within national borders or regions. For both technological innovation and diffusion of knowledge, collaboration and circulation across regions and Member States is as critical to tackle global societal challenges as proximity can be. It ensures that inventions and knowledge benefit from work already done by others. Policy implications include strengthening the ties between regions across national borders, including through R&I policies at European level. Figure 26. Inter- and intra-regional collaboration in patenting (co-patenting) in Europe over 1992-2016 Innovation related to some strategic technologies follows a very specific geography. By mapping links between technologies and the current knowledge structure of EU regional eco-systems, it becomes possible to predict the growth potential of new technologies. Relatedness density maps (Figure 27) indicate which EU regions are in the best position to lead technological change in seven key technologies. Each technology is characterized by a very specific geography. Ile de France, Oberbayern have core technologies related to AI – but when it comes to batteries Rhone-Alpes, Stuttgart, or Trondelag (Norway) are better positioned. mRNA connects most to technologies found in the capital region of Denmark or Languedoc-Roussillon.

Figure 27. Relatedness density maps for seven key technologies in the EU A carefully designed research & innovation policy could be technology-specific and empower relevant knowledge eco-systems. It is also important to stimulate inter-regional linkages. Links that are the most impactful for regional leadership and innovation are the ones that build on complementary assets.Another fundamental way to document the spatial distribution of knowledge is not to look at regions in isolation with each other’s but to analyse the European inter-regional system of innovation. Figure 28 shows the co-inventor ties between regions, for all technologies. When looking at collaborations, country borders become extremely marked. The top 10 connections of Ile de France - the EU regions with the most internal collaborations – are all other French regions. The same goes for Upper Bavaria and other EU regions. European regions disproportionally favour same-country collaborations over pan-European ones. This fact signals system failure in the innovation systems that justify higher-policy level intervention to scale-up EU technologies and achieve global leadership in the twin transition. Figure 28. The EU regional system of innovation – network European regions are hosts to pockets of specialisation in specific sectors of the industry, including the 14 European industrial ecosystems. When considering the industrial specialisation of European regions, over 1100 industry-relevant specialisation nodes across the EU-27 can be identified, accounting for 19.5% of total employment. These pockets of specialisation gather SMEs, large firms, research organisations, related economic actors and institutions, which are located near each other and have reached a sufficient scale to develop specialised expertise, services, resources, suppliers, and skills. Regional industry clusters have a positive impact on regional and industry performance, including job creation, patenting, and new business formation, which could explain the high concentration of technological innovation in different sectors across the EU regions. Finally, research and technology infrastructures (e.g., demonstrators, testbeds, incubators and accelerators) are also key in creating and maintaining dynamic R&I ecosystems (see Box 3). For technology infrastructures there is a need to develop a European Strategy for Technology Infrastructures to support technology co-creation, scale-up and diffusion across Europe to strengthen its technology sovereignty. Box 3. The role of Research Infrastructures and Technology Infrastructures in Innovation The EU benefits from a rich landscape of complementary national, regional and European research infrastructures (RIs) and technology infrastructures (TIs). They are enablers for excellent science, creation of new and fundamental knowledge and have impact beyond research to attract the best talents, researchers, highly qualified engineers, technicians and students; to further develop regional, local, national and EU level innovation ecosystems; and to facilitate the uptake of technologies by regional and local industries notably SMEs and high-tech companies as well as to cooperate at EU level and with global industries. RIs and TIs are both essential for a functional and efficient European R&I System. Complementing RIs, TIs are used by industry to develop, test and upscale technology to advance from validation in a laboratory up to higher TRLs prior to competitive market entry. Technology infrastructures are a key element in the development of local and regional innovation ecosystems, alongside civil society, universities, RIs, RTOs, industry and SMEs. Beyond the regional and local aspect, pan-European networks of technology infrastructures, offering bundled services for specific technology domains, will help increase innovation cohesion in Europe. The role of technology infrastructures as accelerators in the “lab’ to fab’” process was outlined in the Staff Working Document on technology infrastructures. TIs are, therein, understood as “facilities, equipment, capabilities and support services required to develop, test and upscale technology to advance from validation in a laboratory up to higher TRLs prior to competitive market entry. They can have public, semi-public or private status. Their users are mainly industrial players, including SMEs, which seek support to develop and integrate innovative technologies towards commercialisation of new products, processes and services, whilst ensuring feasibility and regulatory compliance”. At the same time, “research infrastructures” means facilities, resources and related services that are used by the scientific community to conduct research in their respective fields and covers scientific equipment or set of instruments, knowledge-based resources such as collections, archives or structured scientific information, enabling information and communication technology-based infrastructures such as grid, computing, software and communication, or any other entity of a unique nature essential to conduct research. Such infrastructures may be 'single-sited' or 'distributed' (an organised network of resources). In the broader context of the European research infrastructures landscape, RIs and TIs each have their own specificities and both are important components in a well-functioning R&I system. As underlined in the JRC Policy Brief, there is a continuum between RIs and TIs, and they often are complementary: RIs create new scientific knowledge, which is often used by TIs to address the future needs of European society and industry. To be able to achieve the ambitious targets of the twin transitions, research actors, industry and SMEs in Europe need access to both, world-clas