Finding the "E" in R&D: Tackling Innovation in an ESG Culture
It's not enough to focus on the bottom line anymore.
In today's business climate, being a good corporate citizen is more important than ever, with companies being held accountable for their impact on society and the environment. By appealing to a growing consumer base concerned about ethical stances, companies are being responsive in how they boost sales and build brand loyalty.
As a result, a new kind of corporate pioneer is emerging—one that is reimagining what it means to be a responsible business and how to broadcast alignment with environmental, social, and governance goals (ESG). Some businesses are taking ESG programs a step further. No longer satisfied with simply adhering to regulations, a number of companies are harmonizing innovation with long-term sustainable impacts to offer consumers and investors the ESG alignment for which they’re calling.
One of the main ways businesses do this is by harnessing research and development (R&D) to achieve these goals—specifically when it comes to aligning innovation with environmental consciousness.
A Turning Point for R&D
Every year, companies worldwide invest billions upon billions of dollars into R&D. In 2019, global spending on R&D reached $2.3 trillion, and the annual investment has been growing at approximately four percent per year over the past decade. These eye-opening figures reflect the growing importance of innovation and the pursuit of new knowledge. In many cases, the result of this research is commercialized and makes its way into our everyday lives. From the phones we use to the medicines we take, it is clear that investment in R&D plays a vital role in our world.
Traditionally, companies focus their R&D efforts with a straightforward vision—secure a competitive edge, maintain relevance, and increase profits. Those goals haven't changed, but the way companies address them is evolving. In the past, product development and product improvement derived primarily from the basic needs of the industry. As more companies strive to align R&D with their business goals and balance their ESG efforts, they are shifting the paradigm to a more holistic approach.
Companies are starting to innovate at every stage of the product lifecycle to create more sustainable products and services. They're making sustainability a core part of their R&D process, looking for ways to reduce the environmental impact of their products throughout the manufacturing process, and even redesigning products to be more recyclable or biodegradable. As a result, businesses are reducing their ecological footprint. They're also embracing society and culture to enhance their understanding of what consumers—and stakeholders—find valuable.
While the world continues to grapple with the challenges of climate change, resource scarcity, and social inequality, the need for companies to develop innovative solutions that address the issues consumers and investors care about has never been greater.
Socially Responsible Investing
As many people increasingly seek to reduce their reliance on fossil fuels, car manufacturers are under pressure to develop more sustainable vehicles. Thankfully, many companies, such as General Motors Co. and Ford Motor Co., are already putting their research and development (R&D) budgets towards this goal, focusing on electric vehicles. In 2020, General Motors promised to allocate $27 billion over the next five years to produce electric and autonomous vehicles. Ford stated in 2021 that it planned to spend $30 billion on electric cars by 2025.
And cars aren't the only vehicles going electric. Bombardier Recreational Products, a Canadian manufacturer of snowmobiles and boats, plans to spend $300 million over the next several years to develop electric vehicles to stay relevant in the market.
In another innovative approach, Procter & Gamble's R&D team invented a technology that can remove virtually all contaminants and colors from used plastic, restoring it to a "virgin-like" quality. It will help the corporation—and other companies—increase the amount of recycled plastics used in products and packaging.
Other examples of eco-innovation include everything from solar roadways to lab-grown fish to reusable notepads.
Take Advantage of the R&D Tax Credit
Significant tax advantages exist for businesses that engage in R&D activities of all kinds. The most well-known is the R&D tax credit, which can substantially reduce your organization's tax liability. To claim the credit, your business must meet the following criteria:
- New or improved products, processes, or software
- Technological in nature
- Elimination of uncertainty
- Process of experimentation
The R&D tax credit is a complex incentive with many rules and regulations, making it difficult for taxpayers to determine if they are eligible for the credit and, if so, how to claim it. A qualified tax professional can help to navigate the complexities of the R&D tax credit and maximize the benefit for taxpayers.
If you're unsure if your business qualifies, our team of experts can help. Contact us today to make sure you get the most out of this valuable tax credit. Published on August 02, 2022