Science, technology and innovation (STI) plays a prominent role in promoting greater economic competitiveness, resilience and security, and sustainability. To realise their potential, STI systems need to be reformed to generate and deploy relevant knowledge, technologies and innovation at an unprecedented pace and scale. This chapter proposes five key actions STI policymakers can take: promote a policy agenda that contributes to broad transformative change; balance direct and indirect support to research and development; strengthen co-ordination between STI policies and non-STI areas; mobilise public funding to crowd-in private finance; and promote transformative change that goes beyond “business-as-usual” outcomes. The chapter emphasises the need for governments to experiment with and adopt innovative policy mechanisms and tools, and to better appreciate and leverage innovation dynamics to accelerate transformative change.
OECD Science, Technology and Innovation Outlook 2025
Abstract
Global challenges are placing increasing pressure on governments, firms and society more broadly to rethink how our economies and societies can better operate. There is a growing need for transformative change that promotes economic competitiveness, resilience and security, and sustainability transitions.
Science, technology and innovation (STI) systems are expected to play a prominent role in advancing transformative change. They need to be reformed to generate and deploy relevant knowledge, technologies and innovations at an unprecedented pace and scale, under conditions of uncertainty and complexity. Many of these reforms are already well-known within the STI policy community yet pose significant implementation challenges.
Governments should consider a range of policy actions when reforming their STI policy mix to better contribute to transformative change agendas. First, STI policy agendas should intentionally leverage synergies and mitigate trade-offs between a range of policy priorities that contribute to broad transformative change. For example, policy support for national competitiveness can also contribute to resilience and security as well as sustainability transitions, if designed appropriately.
Second, policymakers should strike an appropriate balance and exploit synergies between direct and indirect support measures for research and development (R&D) to promote transformative change. While direct measures can support more ambitious R&D and technological breakthroughs, non-directed measures encourage R&D activities with near-market potential that can help accelerate transformative change.
Third, governments should strengthen co-ordination between STI and non-STI policy areas in pursuing transformative change. The fragmentation of state structures can hinder governments’ ability to deliver the needed cross-cutting priorities and interventions to foster transformative change. Governments should continue to experiment with novel policy instruments, such as challenge-based funding and mission-oriented innovation policies, to bring together multiple actors to co-create and collaborate across innovation chains on transformative pathways.
Fourth, governments should mobilise public funding to crowd-in private finance for transformative change. Several capital market failures discourage the allocation of private investment into technologies that promote transformative change. Governments should continue to experiment with instruments like blended finance to deploy public financial resources to leverage or attract private capital.
Finally, governments should seek to promote transformative change rather than “business-as-usual” outcomes. To help steward fundamental, radical and possibly rapid changes, they must appreciate and embrace the nature of transformative change and how it differs from and relates to incremental change. STI policymakers should identify “leverage points” for interventions that can trigger and accelerate the sorts of system-wide changes needed for transformations.
These five policy actions cover issues that have preoccupied STI policymakers in one form or another for several decades and in this sense are not unique to the pursuit of transformative change. However, the urgent need for transformative change means reforms like these should be implemented quickly if STI is to remain relevant and contribute to future economic and societal advancement.
Growing geopolitical tensions, the accelerating climate crisis, biodiversity loss, rising inequality and rapid technological change: these and other challenges are placing increasing pressure on governments, firms and society more broadly to rethink how our economies and societies can better operate for the greater good. There is growing recognition of the need for transformative change, in which STI is expected to play a prominent role. To fulfil this promise, however, STI systems need to be reformed to generate and deploy relevant knowledge, technologies and innovation at an unprecedented pace and scale. This needs to be done in conjunction with reforms in other systems, including energy, health, agriculture and industrial production, where success will also depend on a range of framework conditions, including finance, skills and regulations.
Many of the necessary reforms are well-known within the STI policy community yet pose significant implementation challenges. In response, the OECD Committee for Scientific and Technological Policy has developed the Agenda for Transformative Science, Technology and Innovation Policy to provide high-level guidance to policymakers on their STI policy reforms (OECD, 2024[1]).1 While the Transformative Agenda’s framework can be applied to any transformative goals, it highlights three that capture many contemporary STI policy concerns:
Promoting economic competitiveness that is fair and inclusive. Many OECD Member countries’ STI policies place renewed emphasis on productivity growth and international competitiveness. At the same time, income inequality has a sizeable and statistically significant impact on growth and is a key strategic consideration for economic development and societal outcomes.
Fostering resilience and security against risks and uncertainties posed by the growing emergence of systemic threats. Abrupt shocks, such as the COVID-19 pandemic, demonstrate the importance of resilience to anticipate, absorb, recover from and adapt to disruptive change. On the security side, rising strategic competition between countries in critical technologies and resources that underpin economic competitiveness and national security have led governments to increasingly pursue greater strategic autonomy.
Advancing sustainability transitions that mitigate and adapt to a legacy of unsustainable development from climate change, pollution and biodiversity loss. Advancing sustainability calls for accelerated transitions in specific industries, technologies, and established models of production and consumption.
Sustainability transitions have been a prominent feature in most national STI strategies for the last decade, though there are signs this may now be changing. The evolving geopolitical context has brought growing attention to national security through means of strategic autonomy and technological sovereignty (see Chapter 2), while economic competitiveness is again emerging as the pre-eminent concern of research and innovation policy. Since most OECD Member countries are interested in pursuing these goals simultaneously, this chapter considers whether they imply trade-offs or can be complementary and synergistic. It proposes that STI policy can support the transformative change needed to achieve a range of goals by intentionally leveraging synergies and mitigating trade-offs between them.
Much of the chapter focuses on the funding and financing of STI, a core concern for policymakers. Transformative change calls for greater directionality in STI systems, including in their allocation of resources. The chapter therefore explores data on R&D funding and governments’ research priorities. It also considers the policy instruments governments use to direct R&D expenditures towards the chosen priorities. These measures are part of a broader policy portfolio that also provides non-directed support, e.g. through R&D tax incentives to firms. Governments face challenges to balance this portfolio and promote synergies between different measures, particularly under conditions of uncertainty and complexity that demand agility and diversity. The chapter describes a simple schema for mapping policy portfolios along the innovation chain and according to their degree of directedness. It also highlights examples of selected policy innovations by several governments to foster more responsive R&D, more breakthrough research and innovation, and more integrated policy support across the innovation chain.
The chapter also considers measures to better co-ordinate STI policy with non-STI policy areas to promote transformative change. The fragmentation of state structures can hinder governments’ ability to deliver the sorts of cross-cutting priorities and interventions that are needed. Cross-government co-ordination is especially important, since market and structural conditions, such as regulations and standards, should be aligned to facilitate technology diffusion and phase-out, while the substantial scope of investments needed to facilitate transformations will necessitate buy-in from across government to co-invest in and co-manage coherent portfolios of activities. The chapter outlines how governments are experimenting with novel policy instruments, such as challenge-based funding and mission-oriented innovation policies (MOIPs), to bring together multiple actors, including from different policy domains, to co-create and collaborate across innovation chains on transformative pathways.
Since firms account for around two-thirds of R&D expenditures across the OECD and the private sector is the main source of R&D funding, they have an important role to play in promoting transformative change through STI. However, several capital market failures discourage the allocation of private investment to technologies that promote transformative change. Governments can use risk-mitigation tools to help firms cross “valleys of death” at various stages of the innovation chain. These include “blended finance”, with a view to deploying public financial resources to leverage or attract private capital. The chapter argues that governments should continue to experiment with such tools, which have the potential to direct STI finance and help scale-up private investments in research, development and innovation (RDI) and innovation to promote transformative change.
All these issues are broad and long-standing and have preoccupied STI policymakers in one form or another for several decades. In this sense, they are not unique to the pursuit of transformative change. However, since transformative change refers to a radical and permanent qualitative shift in current socio‑economic systems, new policy approaches to steward fundamental, radical and possibly rapid changes are needed. As a starting point, an appreciation of the nature of transformative change – and how it differs from and relates to incremental change – is essential. This chapter proposes that governments map and target multiple innovation system feedback cycles in their policy interventions to accelerate transformative change.
The chapter is structured around five proposed policy “actions” that cover these issues:
Action 1: Promote a policy agenda that contributes to broad transformative change.
Action 2: Direct R&D funding for transformations in combination with non-directed measures.
Action 3: Strengthen co-ordination with non-STI policy areas on transformative change.
Action 4: Mobilise public funding to crowd-in private finance for transformative change.
Action 5: Promote transformative change rather than “business-as-usual” outcomes.
This chapter offers a brief overview of each action and provides selected examples of countries’ policies, particularly where these involve innovative approaches that offer lessons to other policymakers.
Transformative change calls for ambitious levels of STI investment over a long period
R&D investment is a key driver of growth and a core concern in STI policy. Transformative change calls for ambitious levels of investment over a long period, covering all parts of the innovation chain, from exploratory fundamental research to the deployment and diffusion of tested technologies. These investments are distributed among a variety of different actors within public research and innovation systems as well as private industry. As such, they include public funding for STI from research and innovation ministries and agencies, as well as from sectoral ministries and agencies in areas like energy, transport, agriculture and health. They also cover private financing for STI.
There has been a recent slowdown in R&D expenditure growth in the OECD
While R&D expenditures have increased markedly over the last two decades, there are concerns that debt burdens and inflationary pressures will lead to a slowdown in this growth or even an absolute decline. Recent policy uncertainty and economic activity indicators also signal the potential for rising levels of inflation and a softening of global growth (OECD, 2025[2]). The latest year for which internationally comparable OECD data on R&D expenditures are available is 2023, showing a 2.4% increase in inflation-adjusted terms on the previous year in the OECD, down from 3.6% in 2022. This growth was again driven by the business sector (Figure 1.1), which experienced a 2.7% increase from 2022 to 2023, compared to 2.5% for R&D performed in government sector institutes and 1.7% in the higher education sector. The business sector accordingly accounted for 73.6% of total gross domestic expenditure on R&D (GERD) in the OECD in 2023, up from 66% in 2010. Among the largest spending countries, the share of business-performed R&D increased in the People’s Republic of China (hereafter “China”) from 60% in 2000 to 77.7% in 2023, which is close to the proportion in the United States (78.4%) and higher than that of the EU27 (66.0%).
2007=100
Source: OECD (2025), Main Science and Technology Indicators Database, http://oe.cd/msti (accessed in March 2025).
Within the OECD, Israel (6.3%) and Korea (5%) continued to display the highest levels of R&D intensity as a percentage of gross domestic product (GDP) in 2023 (Figure 1.2). R&D intensity in the OECD climbed from 2.3% in 2013 to 2.7% of GDP in 2023. Growth in inflation-adjusted R&D expenditure in the OECD was distributed across several countries but with notable differences among them. In the United States, it stood at 1.7% and in the European Union (EU) at 1.6% in 2023. The European Union’s largest economies slowed the area’s overall growth: Germany’s R&D rose by 0.8%, while France’s fell by 0.5%. In contrast, R&D expenditure in Poland and Spain increased by over 8%. R&D growth in Japan (2.7%) and Korea (3.7%) exceeded the OECD average. At 8.7%, growth in R&D expenditure in China in 2023 surpassed that of the OECD (OECD, 2025[3]).2
As a percentage of GDP
Note: 2023 data correspond to 2022 for the United Kingdom and 2024 for Canada.
Source: OECD (2025), Main Science and Technology Indicators Database, http://oe.cd/msti (accessed in March 2025).
What policy goals are governments prioritising in their R&D expenditures?
Since there are always more ideas and prospective projects to fund than there are available resources, setting research priorities and selecting R&D performers have long been recognised as key policy concerns (see, for example, Weinberg (1963[4])). Furthermore, significant proportions of government-funded R&D target specific economic and societal goals, which are subject to priority-setting processes.
Data on government budget allocations for R&D can be usefully broken down to provide insights on the areas being funded by the public sector (Figure 1.3). Data for the OECD show that support has grown most strongly for health objectives (reflecting changing societal expectations on healthy living and ageing) and general advancement of knowledge (reflecting a relative retreat by governments to set research objectives) over the last few decades. However, R&D investments targeting health-related objectives have declined steadily between 2020 and 2024. After reaching USD 97.4 billion in constant purchasing power parities (PPP) in 2020 – at the height of the COVID-19 pandemic – investments fell to USD 86.3 billion in 2024, a decline of 11.5%. By contrast, support for energy R&D (USD 31.9 billion in constant PPP in 2024) and defence R&D (USD 111.17 billion constant PPP in 2024) increased sharply over the same 2020-24 period, by 51% and 17%, respectively, reflecting policy goals to reduce greenhouse gas emissions and enhance national security. There is some variety across OECD Member countries on the relative weight of these areas in their R&D budget portfolios, as shown in Figure 1.4. These reflect, in part, different institutional set-ups and R&D funding arrangements across countries, as well as their sectoral specialisation.
1991 = 100
Note: GUF: general university funds; GBARD: government budget allocations for R&D.
Source: OECD calculations based on OECD (2025), Main Science and Technology Indicators Database, https://oe.cd/msti (accessed on 17 October 2025).
As a percentage of total government budget allocations for R&D
Notes: GUF: general university funds. Public GUF refer to the R&D funding share from the general grant that universities receive from the central (federal) Ministry of Education or corresponding provincial (state) or local (municipal) authorities in support of their overall research/teaching activities. General advancement of knowledge (financed from sources other than GUF) is R&D funding from general grants that cannot be attributed to an objective and are financed by sources other than GUF. 2024 data corresponds to 2023 for Chile, Israel, Korea United Kingdom and 2022 for Canada.
Source: OECD calculations based on OECD (2025), Research and Development Statistics, https://www.oecd.org/en/data/datasets/research-and-development-statistics.html (accessed on 17 October 2025).
Insights on the directionality of public R&D funding can also be gleaned from analysis of the administrative data of research and innovation funding bodies. Focusing on societal goals, an analysis of R&D project funding data in the OECD Fundstat database (version: 2024, May 2025) (Aristodemou et al., forthcoming[5])3 shows that public R&D funding grew across all major goals from 2015 to 2023 (Figure 1.5). Among the societal goals categories used in the analysis, “Prosperity” accounted for the largest amount of R&D funding in 2023, followed by “Health” and “Planet”. In terms of growth over the 2015-2023 period, “Energy” grew 2.3 times, “Prosperity” 2.1 times, “Planet” 1.8 times, “Peace” 1.7 times and “Health” 1.6 times. “Education” saw the lowest growth, at 1.2 times. These patterns highlight that much of government R&D remains focused on promoting economic competitiveness, and that although support to sustainability transitions has risen in recent years, it remains modest in comparison.
R&D funding awards for 19 OECD countries and EC-EU programmes
Notes: The OECD Fundstat database includes R&D project-level data from 19 OECD countries (Australia, Austria, Belgium, Canada, Czechia, Estonia, Finland, France, Germany, Japan, Ireland, Latvia, Lithuania, Norway, Portugal, Sweden, Switzerland, the United Kingdom and the United States) and the European Commission programmes. For 2021, the data for these 19 countries represent approximately 51% of the total government budget allocations for R&D, excluding general university funds, for these countries as reported in the OECD Main Science and Technology Indicators Database. Sustainable Development Goal (SDG) categories are mutually exclusive with fractional allocations using the SDG classifier on R&D project descriptions (Aristodemou et al., forthcoming[5]). The SDG (https://sdgs.un.org/goals) categories are defined as follows: Prosperity includes SDG 8, SDG 9, SDG 10 and SDG 11; Health includes SDG 1, SDG 2, SDG and SDG 5; Planet includes SDG 6, SDG 13, SDG 14 and SDG 15; Energy comprises SDG 7; Peace covers SDG 16 and SDG 17; Education corresponds to SDG 4 more closely resembling scholarship-driven research as opposed to research on education; and No relevance projects are without identifiable alignment to any specific SDG. R&D funding award data reflect authorisation rather than actual commitments or expenditure. The prominent peak in 2020 largely results from increased R&D funding related to the COVID-19 pandemic response, along with the inclusion of Japan’s Green Innovation Fund in the database.
Source: OECD analysis of the OECD Fundstat database (v. 2024) (accessed in May 2025).
Tensions and synergies in pursuing a range of priorities
While there are strong synergies and interdependencies between the priorities of economic competitiveness, security and sustainability, insular efforts to advance specific goals may compromise others. Some of the relationships between these policy goals are universal while others may be specific to a particular geographic context or sector Table 1.1 provides a comprehensive, albeit likely incomplete, overview of some of the synergies and tensions between sustainability and other policy priorities related to economic competitiveness, inclusive development, and national security and resilience.
This chapter unpacks some of the connections between sustainability transitions and economic competitiveness and inclusion (Chapter 2 discusses connections with security). The chapter first outlines synergies and trade-offs then discusses them in reference to specific policy interventions from a selection of countries to provide examples of how such synergies are leveraged, trade-offs are mitigated or where goals may be in dissonance. In this regard, the analysis considers a selection of the latest STI policy announcements and budgets from four countries – Australia, Canada, Korea and the United Kingdom – as well as from the European Union, as outlined in Table 1.2. These countries were chosen primarily for their global geographical spread.
Review of recent policy announcements in four OECD countries and the European Union
Synergies and tensions between sustainability and economic competitiveness?
Evidence suggests that climate action and economic development strategies are mutually reinforcing. Over the next decade, ambitious targets and policies to reduce greenhouse gas emissions could result in a net gain to global GDP (OECD/UNDP, 2025[8]). Without government intervention, industry-led STI activities tend to focus on optimising the profitability and efficiency of established solutions rather than the emergence of new alternatives (Garsous, Bourny and Smith, 2023[9]; OECD, 2025[10]). However, challenging fiscal positions may require governments to direct support towards priority areas to balance short-term growth and long-term sustainable development (OECD, 2025[2]).
The scale-up of industries and technologies that are less destructive or carbon-intensive, like the use of natural gas and liquefied natural gas as bridge fuels, can provide interim solutions. However, they can also slow or draw resources away from more sustainable alternatives (Meadowcroft, 2011[11]). Australia recognises this reality in its Future Gas Strategy, which is pragmatic about the necessity of gas-powered generation for electricity grid security and reliability while identifying the commercialisation of net zero alternatives as a means to reduce demand (Australian Government, 2024[12]).
In addition, the greening of some industries will be more difficult. This could be the case where low-carbon solutions are far from commercial or competitive, where production or deployment infrastructure requires substantial upfront investment, or where significant disruption of industrial operations would damage economic competitiveness. Many countries provide public funding or incentivise private financing for carbon capture, utilisation and storage (CCUS) technologies and infrastructures, including Canada’s tax credit for CCUS (Government of Canada, 2024[13]) and Korea’s Carbon Capture and Utilisation (CCU) Demonstration Support Center and supports for businesses to apply CCU technologies (Government of Korea, 2024[14]). The United Kingdom also has plans to leverage GBP 8 billion of private investment in CCUS infrastructure (HM House of Commons, 2024[15]).
Several governments are also taking steps to streamline bureaucracy or harmonise regulation to advance sustainability transitions and contribute to economic growth. For instance, Australia, Canada and the European Union have introduced initiatives to cut red tape and accelerate approval processes for clean growth projects (Commonwealth of Australia, 2024[16]; Government of Canada, 2024[13]; European Commission, 2025[6]).
Analysis of the synergies and trade-offs between policy priorities (Table 1.1), paired with policy examples from the countries analysed (Table 1.2), yields a range of policy options available for the design of integrated STI approaches needed to optimise or navigate interdependencies between different goals. These are outlined in Table 1.3 and Table 1.4 and organised loosely according to different phases of transformation and corresponding intervention points (Ghosh et al., 2020[17]; Kanger, Sovacool and Noorkõiv, 2020[18]).
Note: In several instances, there is notable overlap or alignment between policy considerations for stewarding fair and competitive sustainability transitions.
Source: Adapted from Kangar, Sovacool and Noorkõiv (2020[18]); Ghosh et al. (2020[17]); Kivimaa and Rogge (2024[19]).
Synergies and tensions between sustainability and inclusive development?
Technology-driven development often co-exists with, or may reinforce, absolute and relative poverty (Chataway, Hanlin and Kaplinsky, 2014[20]). Without appropriate distributive or inclusion measures, contemporary innovation pathways can exclude large segments of the global population as both producers and beneficiaries of change (Planes-Satorra and Paunov, 2017[21]). Inequality is correlated with slower growth and constrained innovation and can impair sustainable development by limiting demand for less competitive net zero solutions (Mazarr, 2022[22]; Ostry, Berg and Tsangarides, 2014[23]). This is a central focus of some of the initiatives outlined in the STI strategy documents.
For instance, Canada is making efforts to improve data on the national clean technology industry to better understand and address the needs of under-represented groups (ISED, 2025[24]). The United Kingdom has embedded sustainability and inclusive development into the Innovation Accelerator programme, which supports the development of innovation clusters to advance the development of greener technologies and helps to address regional income and productivity disparities (DSIT, 2024[25]; UKRI, 2025[26]). Recent evaluations of the EU Bioeconomy Strategy have revealed uneven distribution of activities across EU regions (BioRural, 2024[27]; European Commission, 2022[28]). This has spurred efforts to update the strategy to take advantage of the growth potential of the expanding bioeconomy while reducing reliance on fossil fuels and improving economic outcomes for rural areas.
Embedding inclusion and fairness as key considerations within sustainability initiatives is necessary to facilitate fair transitions.4 However, engagement is largely absent as a topic addressed at the strategic level in the country examples examined, apart from the Canadian and Australian strategy documents, which make mention of indigenous consultations. For example, Canada has allocated CAD 800 million to support indigenous-led environmental conservation efforts (Government of Canada, 2024[13]). The Australian government commits to drawing on the expertise of Aboriginal and Torres Strait Islander communities to mitigate climate change and the transition to net zero (Australian Government, 2024[29]).5
In addition, action may be necessary to balance potential conflicts between sustainable and inclusive development.6 Many of the strategy documents reference national supports for communities and workers affected by sustainability transitions, which emphasises the necessity of connectivity and coherence between STI and other policy domains. This is further discussed below. More generally, policies focused on skills accumulation and lifelong learning may also contribute to productivity increases.7 Chapter 3 discusses these and other related issues extensively.
Note: In several instances, there is notable overlap or alignment between policy considerations for stewarding fair and competitive sustainability transitions.
Source: Adapted from Kanger, Sovacool and Noorkõiv (2020[18]); Ghosh et al. (2020[17]); Kivimaa and Rogge (2024[19]).
Governments use a range of funding instruments to support RDI, many of which can be used to promote activities across a wide range of the innovation chain (Figure 1.6). Nevertheless, some funding instruments are preferred over others to promote either (breakthrough) R&D or demonstration, deployment and diffusion of technologies. Both are essential, since a mix of knowledge, innovation, and novel and existing technologies is needed to promote transformative change.8 The challenge for governments is to strike an appropriate balance, which will vary depending on, for example, a technology’s maturity and the domestic capabilities of firms and universities to develop and adopt related novel science and technologies.
Notes: R&D: research and development. This figure shows a selection of R&D and innovation funding instruments used by governments and their typical range. A more comprehensive taxonomy developed by the EC-OECD STIP Compass database can be found at: https://stip.oecd.org/stip.
Another important STI policy debate concerns striking an appropriate balance between directed and non‑directed support to RDI activities performed in both the public and private sectors. As shown in Figure 1.3, much government support for R&D is non-directed and serves general economic development and the advancement of knowledge. In the public sector, non-directed support typically takes the form of institutional “core” funding for universities (including GUF) and public research institutes; and “responsive” R&D grants where researchers propose research projects “bottom-up” for funding. This contrasts with “managed” R&D programme project grant calls, where funding bodies define, with varying degrees of precision, the areas of research they will fund. These “top-down” calls are co‑designed with the research community and support a mix of R&D: typically, basic research in universities and some public research institutes and applied research and experimental development in public research institutes dedicated to supporting firms’ technological upgrading.
There is a natural tension between promoting scientific research that is explicitly oriented towards solving practical challenges and encouraging a broad-based development of scientific capabilities that might ultimately contribute to such goals. This is because research for nominally different purposes can help to achieve transformative goals in unexpected ways. For instance, analysis of low-carbon and other environmental management patents indicates that core scientific disciplines like chemistry and physics, together with material sciences and biology, are among the most heavily cited sources of scientific knowledge relevant for new inventions by inventors and examiners. The wide-ranging nature of these scientific influences underscores the challenge of pinpointing a single dominant field driving low-carbon innovation. This suggests that policymakers should avoid a crude classification of scientific domains as relevant for tackling specific transformative goals (OECD, 2025[30]). It is also often the case that significant breakthroughs emerge from the accumulation and combination of decades of curiosity-driven research across various fields. This was shown most recently in the rapid development of COVID-19 vaccines,9 demonstrating how long-term investments in R&D contribute to societal resilience (see Chapter 4).
Similar tensions play out in debates around public support to private sector R&D. Not only do governments vary in the level of support they offer businesses to encourage them to perform R&D and innovate, they also vary in the policy instrument portfolio they use (Figure 1.7).10 Among directed funding instruments, governments offer grants, loans, credits and debt guarantees to support businesses in their RDI activities and use public procurement to promote firms’ innovation and technological upgrading. Among non-directed instruments are business R&D tax incentives and innovation vouchers (Figure 1.6).
There has been considerable change in the business R&D support policy mix over the last two decades, with a near-universal shift from directed support instruments to a greater reliance on indirect R&D tax incentives. In 2022, 32 of the 38 OECD Member countries gave preferential tax treatment to business R&D expenditures. R&D tax incentives represented around 56% of total government support for business R&D in 2022, compared to 35% in 2006 (Figure 1.8).
As a percentage of GDP
Notes: For Austria, Bulgaria, Chile, China, Germany, Ireland, Luxembourg, OECD average, Portugal, the Slovak Republic, South Africa and the United Kingdom, the latest available figures of direct and tax support for business R&D refer to 2022 instead of 2023. For Australia, EU-27 area, France, New Zealand, Switzerland and the United States, figures refer to 2021. For Brazil, Colombia, Denmark and Romania, data refer to 2020. Preliminary OECD estimate of government tax relief for R&D expenditures for the OECD in 2022. For general and country-specific notes on the estimates of government tax relief for R&D expenditures, see https://stats.oecd.org/wbos/fileview2.aspx?IDFile=7bac5f9d-e557-4938-8928-dda26fb93a19. Data on government tax relief for business R&D also includes subnational tax support for Canada, Hungary and Japan.
Source: OECD (2025), OECD Tax Incentives Database, https://oe.cd/rdtax (accessed in April 2025).
OECD, constant PPP USD, 2007=100
Notes: For general and country-specific notes on the estimates of government tax relief for R&D expenditures, see: www.oecd.org/sti/rd-tax-stats-gtard-ts-notes.pdf. Data on government tax relief for business R&D also includes subnational tax support for Canada, Hungary and Japan.
Sources: OECD (2025), R&D Tax Incentives Database, http://oe.cd/rdtax (accessed in April 2025); OECD (2025), Main Science Technology Indicators Database, https://oe.cd/msti (accessed in March 2025).
Neutrality and reduced policy discretion of tax incentives have several desirable features when funding R&D. They are less costly to administer and, when neutrally designed and available on demand, are more easily compliant with state aid rules (OECD, 2024[31]). However, after two decades of widespread deployment, there is broad consensus that tax incentives are more suited, in principle, to encouraging R&D activities with near-market potential and the shortest payback time. By contrast, direct measures, such as grants, are more suitable for supporting longer term, high-risk R&D, and targeting specific areas that either generate public goods or have particularly high potential for spillovers. Both types of measures provide useful support, but the growing urgency to promote transformative change may point to the need for a rebalanced approach in some countries that gives greater prominence to more ambitious direct measures (González Cabral, Appelt and Hanappi, 2021[32]).11
Given that scientific research and technological innovation are inherently uncertain, policy support should “spread bets” on a diversity of solutions using a portfolio approach. This will help avoid technological lock‑in and develop the absorptive capacities to access knowledge and technologies developed elsewhere. A portfolio approach should also balance funding support across stages of the innovation chain and promote interactions and complementarities between stages to help steward ideas from conception to application and bridge particular “valleys of death”. There is no one-size-fits-all solution and the composition of these portfolios and the research areas, technologies, industries and other forms of innovation that are prioritised will depend significantly on the current context of individual countries and their desired future visions.
In the meantime, governments are experimenting with novel funding mechanisms and arrangements to promote more responsive R&D, more breakthrough research and innovation, and more integrated support across the innovation chain. These are briefly discussed below.
Innovative funding mechanisms to promote responsive R&D
Various policy innovations are emerging that aim to make funding more agile and responsive to changing conditions. Some countries have introduced funding initiatives that consider a broader set of societal considerations in their award decisions. For instance, with the Strategic Innovation Partnership programme in Sweden, the innovation agency Vinnova ranks proposals based on traditional criteria (i.e. the business case and degree of scientific excellence), and, for those that pass this initial evaluation, non-government partnerships select projects to fund that best align with their “theories of change”. Under the National Research and Innovation Strategy for Smart Specialisation of the Czech Republic 2021-2027, standard RDI calls for proposals provide a “bonus” during the assessment process for projects that are relevant to the missions, which increases their probability of procuring funding.12 The Austrian Research Promotion Agency considers the sustainability of each project in addition to the substantive and economic aspects. This includes emissions, pollution, resource and energy consumption, and socio-economic impact (e.g. effects on poverty reduction, health, education, gender, working conditions and fighting corruption).13 Canada’s Strategic Innovation Fund also includes social considerations in its funding decisions, including if a recipient commits to its 50-30 Challenge for board diversity, inclusive hiring practices, environmental practices, indigenous consultations and investment in local communities14 (McIvor, forthcoming[33]).
Governments are also experimenting with flexible organisational structures to ensure funding agencies are better equipped to respond to emerging opportunities and challenges. For instance, some governments are using network delegation to crowd in private sector investment and take funding decisions. Under this model, governments competitively select associations, networks or consortia, who prove their connections to the STI systems to play a role in the funding process. Although the model is not entirely novel, to focus them more on transformative goals, governments are running competitions to select these types of organisations based on their co-developed visions or roadmaps for transformative change. Examples include the Netherlands’ Top Consortia for Knowledge and Innovation, which provide an ongoing matchmaking role within their sectors to help develop consortia of partners to apply for funding opportunities that tackle aspects of the Dutch missions and help disseminate the results of these projects within their sectors. The government still takes the funding decisions under these arrangements. By contrast, Denmark’s Innomissions programme uses a more decentralised model.15 After issuing a call for proposals to develop roadmaps to address four mission areas, the government has delegated control to the winning consortia to issue calls for proposals, review the proposals and allocate funding, and itself performs just a state aid check of the approved projects16 (McIvor, forthcoming[33]).
In other developments, some funding bodies are experimenting with randomisation and lotteries for taking funding decisions to test whether they can achieve more inclusive and ambitious outcomes compared to traditional allocation methods. There are variations to randomisation, including: partial randomisation, which initially vets proposals before selecting those that pass an initial set of criteria at random; weighted randomisation, which ranks proposals, with the better ranked ones awarded more “tickets” in the randomised selection; and tiering, which is similar to weighted randomisation but with less granularity in the ranking.17 Some funding bodies are using these approaches to advance on the transformative goals. For instance, the British Academy used partial randomisation for its small research grants. It found that using partial randomisation could lead to a more ethnically and institutionally diverse cohort of award-holders.18 The Austrian Science Fund also used partial randomisation through pilot grants, which provided seed funding for radical new and bold research ideas that have the potential to transform established scientific knowledge in all disciplines (McIvor, forthcoming[33]).
Organisational innovations to promote breakthrough R&D
Several governments are paying particular attention to the ideal organisational structures to accelerate breakthrough, or transformative, research and innovation. An increasing concern of the scientific community in recent years is that research funding processes have become too conservative and only encourage incremental advances in STI. Failure to encourage and support research on risky, “out of the box” ideas may jeopardise a country’s longer term ability to compete economically and to harness science for solving national and global challenges (OECD, 2021[34]) (see Chapter 4). At the same time, there are worrisome claims that research productivity has been falling in recent decades. Multiple explanations have been offered for this phenomenon, including changes in scientific incentives that reward incremental science, the growing need for but outstanding challenges of supporting interdisciplinarity, and the declining share of public research, which tends to be more supportive of breakthrough R&D (Ciaffi, Deleidi and Di Bucchianico, 2024[35]; OECD, 2023[36]).
These concerns have led several countries to establish new public bodies to pursue focused breakthrough research and innovation, broadly inspired by, and in many cases modelled on, the United States Defense Advanced Research Projects Agency, with various degrees of adaptation. Examples include the Federal Agency for Disruptive Innovation (Germany); the Moonshot Research and Development Program (Japan); the Advanced Research and Invention Agency (United Kingdom); the High-risk, High-gain Research Programme (France); and the Advanced Research Projects Agency for Health (United States). Some of these initiatives are outlined in table 1.5 together with others that use established or open funding calls to identify high‑potential projects that might be outside of current funding priorities or mandates.
The purported need for these new research funding organisations has been justified on a number of grounds, including that larger projects are required than academic laboratories can undertake; more co‑ordination is needed than occurs in academic departments or across generic research consortia; the desired innovations might be insufficiently profitable to arise through start-ups funded by venture capital or industrial R&D projects; and a mismatch exists between time frames typical of academia and traditional research funders and the immediacy of some challenges (OECD, 2024[31]). Programme managers in these initiatives typically have broad freedom to design technical initiatives and redirect resources between their portfolio of projects through a large integrated budget (OECD, 2021[34]).19 Funding decisions can also be rapid, with organisations like Germany’s Federal Agency for Disruptive Innovation being able to take some initial decisions within two weeks.20
Integrating funding across the innovation chain
Some countries are implementing policy initiatives that support research, development and/or demonstration activities across the entire innovation chain. Table 1.6 provides some examples. In several instances, countries have developed two-part funding programmes to support R&D and subsequent demonstration of targeted technologies, such as CCUS, e.g. Norway’s CLIMIT Programme and Canada’s Agricultural Clean Technology Programme.
Individual funding authorities with more expansive mandates are also supporting solutions across the innovation system and along the innovation chain to promote transformative change. Because these organisations have such a breadth of tools at their disposal, they are uniquely situated to address more systemic challenges. In the United Kingdom, the UKRI Challenge Fund21, for example, is addressing societal challenges through funding a range of activities, including collaborative cluster projects, R&D centres, research projects, demonstration projects, behavioural research, and other areas. While many of these agencies are funding transformative goals as part of their broader STI mandates, some funding authorities have more fundamentally incorporated these goals into how they are structured. For instance, the Netherlands Enterprise Agency has a range of instruments that support everything from proof of concept and investments in seed-stage companies to business growth and partnerships. It restructured itself around 3 thematic domains and 20 societal challenges. It then mapped out its programmes to identify how each one relates to its transformative goals to support the scale-up and phase-out of different technologies, as well as the gaps in its programme offerings. The Netherlands Enterprise Agency uses a “theory of change” to guide its investment decisions, and an annual Societal Challenge Cycle is used to update its overarching organisational strategy22 (McIvor, forthcoming[33]).
Public funding to support scientific and technological breakthroughs as well as their diffusion must come from several parts of government, including sectoral ministries and agencies in areas like energy, transport, agriculture and health. Ministries and authorities with formal STI policy responsibilities need to help orchestrate this effort and steer public and private investments to where they are needed the most. However, multidimensional issues like inclusive economic renewal, security and resilience, and sustainability transitions cannot be achieved or even be chiefly driven by STI policies. Other policy areas with regulatory and fiscal powers have often taken the lead. Such transformations require a more systematic and agile approach to contend with issues that cut across policy boundaries and require co‑ordination across subnational, national and international levels of governance.
The policy landscape in many countries is characterised by structural silos and disconnects between different policy domains, national and subnational counterparts, and different actors working at the interface between STI policy and the STI system (e.g. funding agencies). While this segmentation has enabled the management and even optimisation of different aspects of complex systems in isolation, it can be a barrier to the effective transformation of these systems to better address complex societal challenges.
Governments can deploy a range of cross-government and territorial co-ordination measures to alleviate fragmentation and better orchestrate their interventions, including shared national visions, roadmaps and missions; joint programming between research and innovation funding agencies; and strategic oversight by high-level cross-departmental committees. Some countries have also implemented structural and organisational changes, for example by merging funding agencies or ministries and territorial authorities for STI that cover different parts of the innovation chain (Halme et al., 2019[37]). Box 1.1 provides an overview of related policy measures found in the EC-OECD STIP Compass database.
An analysis of data from the STIP Compass database identified close to 400 unique cross-government coherence and co-ordination initiatives related to the transformative goals (EC-OECD, 2023[38]).* Many of the initiatives analysed target the optimisation of government operations by reducing bureaucracy, consolidating funding and activities, facilitating the co-development or co-funding of shared priorities and policy portfolios, harmonising a policymaking culture or processes in certain areas (e.g. procurement, experimentation, etc.), and making activities more responsive and flexible (e.g. programming concierge platforms, single-window funding applications, etc.).
Around 35% of the cross-government initiatives analysed include horizontal co-ordination bodies between national policy domains. Of these, the most engaged policy domains include economic affairs (37%), education (31%), environment (28%), culture (27%), energy, (27%), finance (25%) and agriculture (23%). While around a half of them issue specific recommendations to ministries to implement, a smaller proportion include the development of joint studies (18%) or the alignment of budget allocations (7%).
Around 40% of the cross-government initiatives analysed include national strategies. Many of these target objectives/challenges or themes that cut across several sectors or are universally relevant. Roughly 50% are related to climate change or environmental sustainability while over 25% target issues of socio‑economic security (energy/food) and other societal challenges (health, aging population). A smaller proportion (15%) relate to inclusiveness (e.g. inequality, job insecurity). Energy is the most represented sector, included in roughly one-third of the strategies analysed. Several other sectors are also reasonably well-represented. Health and healthcare, automotive and road transport, agriculture, food, and marine and ocean are each captured in 15-20% of strategies while education, telecommunications and IT, public administration, pharmaceuticals, and electronics are each represented in 10-15%.
The presence or absence of particular follow-up mechanisms can signal the level of formalised co‑ordination or concerted attention to the translation of strategies into policy action. Roughly half of the strategies analysed are introduced in parallel to periodic monitoring or evaluation mechanisms. At the same time, a smaller proportion are linked to targeted mechanisms or tools intended to support their implementation: 40% of strategies have an associated action plan, 25% have a dedicated co-ordinating or monitoring public body, 20% have dedicated budget allocations, and roughly 10% are linked to a new regulation or law. Additionally, some strategies are supplemented with complementary initiatives, such as the creation of new governance structures or bodies, policy intelligence or consultation bodies, and networks.
* Elements of the STIP Compass data taxonomy (e.g. policy themes related to green transitions, research security, and equity and inclusion) were used to identify policies aligned with the transformative goals.
Source: EC-OECD STIP Compass database, https://stip.oecd.org/stip (accessed on 10 March 2025).
Mission-oriented innovation policies
Among different types of STI policies with transformative ambitions, MOIPs form an internationally recognised policy approach, with distinct principles and features, and a growing body of practical and conceptual knowledge supporting their adoption (OECD, 2024[39]). They involve co-ordinated packages of policy and regulatory measures tailored to mobilising STI to address well-defined objectives related to a societal challenge, in a defined period.23 MOIPs can span various stages of the innovation chain from research to demonstration and market deployment. They can also mix supply-push and demand-pull instruments and cut across various policy fields, sectors and disciplines. While they confront many of the traditional challenges of national innovation systems, MOIPs tend to provide longer term and more consistent funding compared to traditional research and innovation schemes, reflecting their alignment with the long-term character of broader, transformative goals (OECD, 2024[40]).
Given that missions are often nested across different levels of government, the locations from which they are co-ordinated and operated play a critical role in shaping their governance dynamics. Different centres of gravity provide different opportunities and challenges to mission governance. A recently published OECD study of about 100 missions aiming to reduce greenhouse gas emissions has found that, despite significant achievements and progress, they fall short of leveraging the complementarities of various policy and regulatory interventions to scale-up broad and ambitious solutions (OECD, 2024[40]). Most remain narrowly focused on technological innovation, led by STI authorities and reliant on innovation policy funding.
Budgets can set powerful conditions on funding that may force groups to co-operate across silos on the delivery of certain budget items. However, while many missions are supported by a rather integrated co‑ordination structure, most of them are funded by different funding streams that correspond to the different instruments/activities they integrate into their portfolio, originating from different mission partners and beyond. A mission may have funding for core STI activities (development of the agenda, “orchestration” of the mission) then lack funding to support other activities from research and innovation to skills and infrastructure needed to make an impact. This fragmented funding structure has significant implications for the level of mission integration, since it hinders co-ordination and co-operation. Mission managers often find government budgets inflexible and cyclical, which makes it harder for missions to pivot. Box 1.2 outlines possible governance configurations to help make missions more transformative.
While the challenge to design and, even more, implement missions are numerous and are well-documented, the options to make them more transformative are less clear. Based on previous and ongoing OECD work, five main pathways can be envisaged:
1. Gradual broadening and strengthening of missions by incrementally enlisting new actors; building trust; learning and attracting higher commitments from public authorities outside the science, technology and innovation (STI) realm; and higher investments from private actors. Given the legitimacy of and resources available to STI authorities, which define in large part their convening power, these missions might not extend and deepen much further.
2. Transfer of mission leadership from STI to sectoral authorities who “own” the challenges. Their mandate aligns more closely to the mission objectives (e.g. net zero, circular economy) and they hold essential intervention tools, resources and legal powers to realise them. STI authorities would need to ensure innovation remains a priority in the strategic agendas of these sector-led missions.
3. Ownership of missions by centre-of-government bodies such as a prime minister’s office or a powerful “transition” committee that can enforce a whole-of-government approach to realise the mission. In practice, this pathway has been challenged by a tendency for approaches to remain innovation-driven and a lack of buy-in from participating ministries. A carefully designed combination of carrots and sticks will be necessary to prevent departments from drawing on mission budgets without fully embracing objectives.
4. Smaller scale regional or local missions may be better equipped to define collective agendas and integrate different interventions while leveraging the benefits of place-based innovation and various forms of proximity (e.g. geographic, cultural). These “micro-missions” would still need to be articulated with bigger (national, global) transformative agendas to contribute meaningfully to grand challenges.
5. Dedicated mission agencies could be developed to “co-ordinate mission operations from the ground floor” and report to participating ministries. Once entrusted with one or several missions, these agencies should enjoy significant autonomy to protect activities from political short-term interference. They would also require a large portfolio of instruments or the possibility to co-operate with other agencies.
The one thing these pathways all have in common is adapting leadership structures and fostering co‑ordination and collaboration beyond STI authorities to unlock missions’ transformative potential. The choice between these pathways will depend on the trajectory of each mission, but also on underpinning national or regional institutional specificities.
Source: Adapted from OECD (2024[40]).
To help alleviate some of these challenges, separate funding authorities are issuing joint calls, which allows them to co-ordinate with a broader selection of funding instruments to support more activities across the innovation chain or the innovation system. In this model, the funding pots remain separated by authority. For instance, in Norway, the PILOT-E scheme24 funds business innovation from concept to market through a collaborative approach between five funding agencies that take a co-ordinated funding decision based on the programmes they have available and the technology readiness level of the proposal. Similar flexibility is provided by Ireland’s Impact 2030 Steering Group25, which launches joint calls across the five largest STI funding departments. The funders then determine which instruments are best suited for supporting the different proposals26 (McIvor, forthcoming[33]).
Some governments are using central pots of funding to support activities from across government in a manner that transcends traditional ministerial structures and authorities. France’s Acceleration Strategies for Innovation27 has a central budget managed directly by a dedicated agency under the Prime Minister’s Office. They fund a broad portfolio of activities under various government agencies, without influence by their supervisory ministries, which cover a range of activities, including R&D, technology transfer, technology demonstration, infrastructure investment, and skills formation. Chile is taking a similar approach through its Sustainable Productive Development Program, which also combines investment and STI measures under the one programme. Ministers decide on a theme to focus on each year28 (McIvor, forthcoming[33]).
The ability to end a programme’s or project’s funding is an important aspect of agility but is often hard to achieve in practice within standard governance structures. Many MOIPs have built in either formal review processes within the life cycle of the project or taken stage-gated approaches to funding, where over a specified interval they reduce the number of projects and increase the amount of funding, e.g. Korea’s Alchemist programme, which funds six projects in the first year, three in the second and just one over five years (McIvor, forthcoming[33]).
Missions often grant key roles in the development of the strategic agenda and in implementation to incumbents within the sector(s) where the mission is located. These actors have resources and capabilities as well as infrastructure and networks that make their participation “unavoidable” in any change initiative. However, they also have vested interests in the currently established system that they may be tempted to preserve by advocating for incremental improvements rather than transformational change through alternative, more exploratory, solutions.29 Balancing the participation of incumbents in governance is therefore a key challenge for many missions, especially for ecosystem-based missions that rely on a high level of delegation of several governance functions (not least the development of the strategic agenda and the mobilisation and co-ordination of stakeholders) to ecosystem actors. Policymakers should be wary of becoming limited in their reach to established players within existing policy ecosystems, who already identify and know how to navigate this ecosystem. This calls for an important role for the state as a “moderator” to ensure a balanced and inclusive approach in the development and implementation of the mission’s strategic agenda to avoid mission capture (OECD, 2024[41]).
In recent years, there has been a growing focus among policymakers and funders to promote innovative financing mechanisms that can crowd in new sources of private financing for climate, clean energy, biodiversity and other sustainability challenges. According to the 2024 Financing for Sustainable Development report (United Nations Department of Economic and Social Affairs, 2024[42]), financing the SDGs requires trillions of dollars per year. Access to finance remains a critical obstacle, however, as shortfalls in funding constrain many countries’ ability to put forward and deliver ambitious climate commitments. The private financing gap is most evident in the energy sector, where, according to the International Energy Agency, 85% of the required investments in non-fossil fuel‑based energy will need to come from private sources (IEA, 2019[43]).
Several capital market failures discourage the allocation of private investment into technologies that promote transformative change.30 For example, there are often long-standing alternatives to low-carbon technologies, while deep technology solutions are well-known for being more intensive with timelines for development that do not align with private sector investment requirements. For emerging markets and developing economies, financing the implementation of their current climate plans remains particularly challenging in a context of high public debts and insufficient international support for climate finance (OECD/UNDP, 2025[8]). Achieving the SDGs will require co-operation between developed and developing economies where most of the impacts of the global challenges like climate change and global health are occurring. At COP29, for example, developed countries agreed to a plan in which developed countries committed to providing USD 300 billion annually by 2035 to assist poorer countries in combating climate change. This amount falls short of the USD 1.3 trillion annually that many developing countries believe is necessary to address climate challenges adequately (Bhattacharya et al., 2024[44]; CORDAID, 2024[45]).
Channelling STI financing for the SDGs requires more and new partnerships with multilateral development banks, charities and private foundations, and official development assistance, but also with private investors, pension funds and financial actors operating at the local level. Yet to direct STI financing for the SDGs at scale, a transformation in private investment and financing is needed. Governments can play critically important roles in promoting private investment in sustainability transitions through a range of economic and regulatory instruments. These are underpinned by a range of public policy goals, e.g. climate policies, industrial policies, energy security policies, and improving economic resilience and reducing dependence on global value chains.31 Many of these instruments target innovation and technology, even if they do not directly subsidise the costs of firm investments in R&D, by affecting the broader financial eco-system for innovation.
Towards blended finance?
Mobilising private capital rests primarily on managing risk. When public capital is used to mobilise private or commercial capital, it normally means to provide an investment situation in which risk and returns have found a balance that is acceptable to those investors. This will also depend on the project itself and to what extent the financial solution offered provides an acceptable risk-return profile in each case. Among the innovative approaches to crowd in private finance is “blended finance”, which has mainly been used in development finance (OECD, 2018[46]). With its focus on deploying public financial resources with the view to leverage or attract private capital, blended finance has contributed large resources for investments in developing countries. It is an approach for combining financial instruments in ways that allow participants in the blending to respect their respective mandates and risk-return preferences within an agreed-upon contractual structure.
Approaches like blended finance, which initially emerged as an innovative tool in the development community to crowd in private financing for sustainability projects in developing countries (Samans, 2016[47]), are gaining traction in the STI policy field as a way to combine public and private finance across the innovation chain (Miedzinski et al., 2020[48]; OECD, 2022[49]).
Research on blended finance has shown that different settings or investment purposes typically lead to different combinations of instruments, such as grants, debt, guarantees, funds or facilities and others, to be structured according to the investment situation to achieve a best possible fit of partners and instruments (Kwon et al., 2021[50]). Table 1.7 outlines some of the main instruments and their definitions, which can be clustered into four groups:
1. Grants and technical assistance originate from either public funding or philanthropic capital without any expectation of positive returns. Actors leveraging on these instruments are typically the ones initiating the transactions, and grants blended in the mix will play the catalytic role.
2. Outcome funding, impact bonds and impact-linked finance stand out from the rest in that they connect impact with financial rewards.
3. Various debt and equity instruments, like market-rate, concessional or subordinated debt, normally take higher risk expecting higher returns than debt finance.32 Hence, debt may be used in the later stages of a project’s development.33
4. First loss and guarantees do not normally seek returns but are deployed to provide derisking and attract additional capital. They are typically used in later stages of a development when scaling is needed and when there is a track-record of performance at hand.
These clusters of instruments often co-exist in single overarching policy initiatives, some of which are briefly outlined in Table 1.8.
At the same time, the ability of public finance to crowd-in private finance for sustainability transitions should not be overestimated. Many regulations and incentives that are hard-wired in global capital and financial markets continue to direct private finance towards profitable ventures that may not always promote sustainability. The financing of STI activities targeting the SDGs faces familiar obstacles, such as market failures in the private financing of RDI, as well as economic and technology risks.34 A particular challenge to financing the SDGs is that several of them involve mobilising STI for the preservation and production of “common pool resources”, such as biodiversity, global health and sustainable oceans. Private firms have fewer incentives to provide such public goods; they also have an incentive to maximise the use and exploitation of common goods.
New funding models for STI involving public and private actors offer a mechanism to increase STI funding to support the provision of global public goods. These funding models include blended finance involving multilateral international development banks, philanthropies and institutional investors such as pension funds. Sustainability bonds issued by governments and corporations can potentially scale-up private financing if issues of transparency, monitoring and accountability can be effectively addressed. STI-for-debt swaps, which function like climate-for-debt swaps, could also be used to encourage developing countries to invest in STI capacity building.
In promoting transformative change, STI policy measures should be directed at specific actions that help achieve transformations rather than “business-as-usual” outcomes. Many of the necessary reforms are familiar to the STI policy community, and promoting transformative change often coincides with achieving reforms to address long-standing challenges in STI systems.35 Barriers remain, however, for example in bridging aspirational strategy with the development and implementation of concrete policy interventions and in scaling-up and institutionalising corresponding policy innovations.
Change versus stability
A starting question is the concrete differences between incremental (adaptation) and transformative change, as well as how or if these two processes are related. Transformative change refers to “a radical permanent qualitative change in the subject being transformed, so that the subject when transformed has very different properties and behaves or operates in a different way” (HM Treasury, 2022, p. 122[51]); and “a major change in the structure of the economy brought about by deliberate policy efforts aimed at supporting specific long-term environmental, social, economic or other goals, or in response to climate change and other relevant long-term trends” (New Zealand Ministry of Business, Innovation and Employment, 2023, p. 1[52]). By contrast, incremental change is predominantly focused on preserving integrity and stability. Small-scale, localised and short-term adjustments are made to cope with change or challenges. These changes enable an evolution that allows maintaining fundamental structures and functions of the system (Schumer et al., 2022[53]).36
Are the two processes related? It has been postulated that the aggregation of many incremental interventions can push a system towards a threshold or tipping point that, when breached, triggers a self‑perpetuating process of deep and rapid change (Lenton et al., 2022[54]; Mey, Mangalagiu and Lilliestam, 2024[55]). This non-linear process can be attributed to various feedback dynamics common to innovation processes (Allen and Malekpour, 2023[56]; OECD, 2025[57]) (Box 1.3). The resulting transformation is generally faster, more intense or extensive than expected and can result in “tipping cascades” that impact other systems (Milkoreit, 2022[58]; Spaiser et al., 2024[59]). It proceeds through a combination of complex, dynamic and non-linear pathways, often following S-shaped curve dynamics where the pace of change ramps up and tapers off depending on the phase (Loorbach, Frantzeskaki and Avelino, 2017[60]; Meadowcroft, 2021[61]; Victor, Geels and Sharpe, 2019[62]). The result can be the reconfiguration of component parts of the system, including the pattern of interactions between them, and resulting outcomes (HM Treasury, 2022[51]).37
Economies of scale: Supply-side cost reductions occur as production increases and becomes more efficient and fixed costs are spread over larger volumes. This can yield a virtuous cycle where lower costs encourage adoption, leading to the scale-up of production and further cost reductions.
Learning-by-doing: As experience accumulates, improvements in performance and cost occur, often in parallel to economies of scale. This can yield a virtuous cycle where greater adoption provides more opportunities for learning, improving quality and competitiveness, and spurring further adoption.
Network and co-ordination effects: As adoption grows, utility may also increase for particular types of innovation. For example, this type of feedback dynamic is typically observed for platform technologies (e.g. blockchain, artificial intelligence), interoperable systems (e.g. electric vehicle charging networks, Internet of Things devices) and knowledge communities (e.g. open-source software). When a critical mass of adoption is reached, a bandwagon effect can occur and tip the market in favour of the emerging technology. Indirect network effects can also occur as complementary goods increase in quality or become more abundant (see system build-out).
Adaptive expectations: Technological feedback is reinforced via political, institutional and cultural dynamics. Increased uptake reduces uncertainty and strengthens the confidence of users, investors and other actors. Legitimacy and credibility spur expectations, norms and new institutions like industry associations, standards bodies, educational curricula and user communities, which enable further adoption and investment and may motivate divestment from or discontinuation of the status quo (see destabilisation and phase-out).
System build-out: Complementary innovations (e.g. products, infrastructures, business models, etc.) can help to address technical challenges and enhance the utility of the core technology. However, established technologies also often have deeply embedded complements that can become liabilities or stranded assets as transitions progress.
Destabilisation and phase-out: Once a tipping point is reached, reinforcing feedback dynamics can accelerate the phase-out of established systems through declining sales and economies of scale, erosion of network advantages, increasing costs and reduced competitiveness. When incumbent firms anticipate declining profitability or stricter regulation, they may divest or innovate, which contributes to the cycle.
Along similar lines, the OECD Agenda for Transformative Science, Technology and Innovation Policy suggests that a progressive series of incremental changes in the STI policy mix could also potentially combine into a deeper intervention that disrupts the status quo and creates system-wide change.38 In this way, promoting transformative change may coincide with achieving multiple reforms that address long-standing challenges distributed across STI systems. Its non‑linearity makes transformative change messy and unsuited to “command-and-control” notions of policy intervention. Instead, STI policy should identify “leverage points” for interventions that acknowledge positive and negative feedback dynamics, the distribution of power within systems,39 and the necessity to sequence change to unlock potential pathways. This calls for a reappraisal and recalibration of the frameworks, tools and mechanisms currently used to develop and deploy STI policy, to embrace more reflexive, systemic and responsive processes (OECD, 2024[1]). Table 1.9 outlines policy implications and case study examples related to feedback dynamics like these. Box 1.4 details two examples where governments have taken a more systemic approach targeting multiple, interdependent feedback cycles.
Sweden’s School Food Mission
Sweden’s School Food Mission is a Vinnova pilot project intended to transform Sweden’s school food system and contribute to systemic change across the broader food system. The programme has made use of various transformative policymaking approaches. System maps have been co-created with stakeholders to identify leverage points to trigger system-wide effects. Design thinking and prototyping were used to develop pilot activities in partnership with students, municipalities and food producers, among others. The initiative’s governance mechanisms also enable co-ordination across various policy sectors.
The programme targets feedback dynamics in various ways. The mission has a strong culture of prototyping and iteration where over 1 500 students and 140 partners have engaged to test and evaluate open-source solutions. The programme has evolved through multiple phases involving the adjustment of activities and targets (learning-by-doing). It also exhibits a strong degree of system co‑ordination and stakeholder co-ownership where roadmaps and platforms have been designed to bring actors together across silos and foster legitimacy (network effects). Societal expectations have been shaped by the mission’s shared vision and co-created plans and initiatives (adaptive expectations). Finally, the mission’s focus extends beyond food to develop complementary systems needed to facilitate wider transformation. This includes infrastructure (e.g. redesigned food halls), data systems, procurement tools and curriculum reform (system build-out).
Germany’s National Hydrogen Strategy
Germany’s National Hydrogen Strategy1, launched in June 2020 and updated in July 2023, focuses on advancing and scaling hydrogen technologies, expanding infrastructure, and fostering partnerships to secure clean hydrogen supply. The update introduces new measures to accelerate production, import and use; facilitate integrated solutions and broader sector deployment; and support the development and integration of hydrogen ecosystems at the national and international levels.
The strategy targets feedback dynamics in various ways. Large-scale production projects, including international lighthouse initiatives, help to spread fixed costs while demand-side mechanisms like conditional contracts and procurement auctions ensure uptake (economies of scale). Several regulatory sandboxes and living labs provide real-world testing grounds to identify technical, logistic, legal and business model challenges, facilitating learning and regulatory adaptation (learning-by-doing). Linking to the European Hydrogen Backbone in addition to building up 1 800 km of domestic infrastructure connects domestic and regional production hubs, storage centres, and import terminals. The Southern Hydrogen Corridor initiative between Germany, Austria and Italy also facilitates strategic infrastructure development along transport and industrial corridors (Landini, Amante and Wacket, 2024[63]) (network effects).
In addition, the Hydrogen Acceleration Law (May 2024) helps to boost investor confidence and streamline approvals (German National Hydrogen Council, 2024[64]) and was further endorsed by the federal cabinet with over EUR 3 billion in procurement financing (2027-2036) (HyResource, n.d.[65]) (adaptive expectation). In addition to advancing electrolyser technologies and hydrogen infrastructure, supports also target the development of hydrogen refuelling infrastructure for buses, trucks and trains and pilot projects for fuel cell technologies (system build-out). Finally, construction of the Hydrogen Core Network aims to incorporate repurposed natural gas pipeline, with 60% of the network already available from repurposed natural gas pipeline (phase-out).
Sources: EC-OECD (2025), STIP Compass: International Database on Science, Technology and Innovation Policy (STIP), edition October 7, 2025, https://stip.oecd.org/moip/case-studies/43?utm= ; German Federal Ministry for Economic Affairs and Energy (2025[66]).
This chapter proposed five policy “actions” that governments should consider when reforming their STI policy mix to better contribute to transformative change agendas, focusing, for the most part, on funding and financing arrangements for STI. In the first action – promoting a policy agenda that contributes to broad transformative change – the chapter highlighted several STI policy options that can leverage synergies between different priorities. In this way, support to national competitiveness can also contribute to resilience and security, as well as sustainability transitions, if designed appropriately.
The chapter’s second policy action – balancing direct and indirect R&D funding for transformative change – introduced a simple schema that governments can use to map their policy interventions along two axes: 1) the innovation chain, i.e. from (breakthrough) R&D to demonstration, deployment and diffusion; and 2) the extent to which they are directed “top-down” by government and STI funding bodies. All instruments can play important roles in promoting transformative change, and a key challenge for policymakers is to strike an appropriate balance between them. There are no one-size-fits-all portfolios and an appropriate balance will depend on a country’s assets and priorities.
The chapter’s third policy action – strengthening co-ordination between STI and non-STI policy areas – aims to bridge policy silos to advance transformative change. Among popular approaches are MOIPs, which nevertheless remain constrained by a narrow focus on technological innovation and reliance on STI leadership and funding. The chapter highlighted how governments have begun to experiment with various governance solutions to overcome these limitations, including the ownership of missions by centre-of-government bodies and dedicated mission agencies.
Looking beyond co-operation across the public sector, in its fourth policy action, the chapter outlined how governments can mobilise public funding to crowd-in private finance for transformative change. Among these approaches is so-called “blended finance”, which combines a range of financial measures – including grants and various debt and equity instruments – that can accommodate the risk-return preferences of different actors within an agreed contractual framework. These approaches have their limits, however, especially when the goal is to use STI to preserve or produce common pool goods. Governments should continue to experiment with instruments like sustainability bonds and STI-for-debt swaps, which have the potential to direct STI finance and help scale-up private investments in RDI to promote transformative change.
Finally, in its fifth policy action, the chapter called for greater appreciation of the nature of transformative change and how it differs from and relates to incremental change. This is an important consideration with a view to achieving more than “business-as-usual” outcomes. Transformative change is non-linear and marked by various feedback dynamics that can ramp up the pace of change and reconfigure whole systems. The chapter argued that STI policymakers should identify “leverage points” for interventions that can trigger and accelerate the sorts of system-wide changes needed for transformations.
These five policy actions clearly overlap and should be viewed systemically when formulating and implementing STI policies. The fifth policy action – appreciating the non-linear dynamics of transformative change – underpins the other policy actions proposed in the chapter and should be an essential consideration when balancing the STI policy mix. Co-ordination across government on priority agendas is also essential insofar as support to research and innovation and their diffusion is widely distributed across various ministries and agencies. Co-ordination must also extend to the private sector, given its dominant role in RDI and their commercialisation. Finally, as societies and economies face multiple challenges – and opportunities – governments must balance their STI policy support to a range of priorities, including economic competitiveness, resilience and security, and sustainability transitions. This is far from easy, but the chapter has highlighted several policy options for intentionally leveraging synergies and mitigating trade-offs between them.
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← 1. The OECD Agenda for Transformative Science, Technology and Innovation Policies is a product of a meeting of the Committee for Scientific and Technological Policy at Ministerial level held in April 2024 with the theme of “Enabling sustainability transitions through science, technology and innovation: Shared challenges and transformative actions”. Ministers affirmed the need for an ambitious agenda for transformative STI policies and values-based technology governance frameworks, and provided strategic directions for the future work of the Committee for Scientific and Technological Policy. The main outcome of the meeting was the adoption of the Declaration on Transformative Science, Technology and Innovation Policies for a Sustainable and Inclusive Future (hereafter the “Declaration”). Structured around four pillars, the Declaration makes a case for transformative STI policies to accelerate sustainability transitions while embedding shared values in the governance of science and emerging technologies, reaffirming the need for international co-operation in STI to address global challenges, and focusing on making STI more inclusive and strengthening the evidence base. The Declaration is made operational by two underpinning documents welcomed by Adherents to the Declaration: the OECD Agenda for Transformative Science, Technology and Innovation Policies (OECD, 2024[1]); and the OECD Framework for the Anticipatory Governance of Emerging Technologies (OECD, 2024[71]).
← 2. The United States remains the largest absolute spender on R&D in the world, spending USD 956 billion in 2023 (measured in current PPP USD, the standard method for international macroeconomic comparisons). The pace of growth in R&D spending picked up in the United States around a decade ago, leading to a widening gap with the EU27 and other leading industrial economies, such as Japan. Using the same measure, the second-largest spender is China (USD 917 billion in 2023), whose R&D expenditures surpassed those of the EU27 a decade ago and are now 62% greater. On this measure, the gap in the level of R&D expenditure between China and the United States narrowed significantly in 2023, with China’s R&D expenditure 96% of the United States’, up from 72% ten years before. However, when measured in USD at market exchange rates (an alternative measure to constant PPP USD), the gap remains much wider, with China’s R&D expenditures 49% of those of the United States in 2023, up from 42% in 2013 (OECD, 2025[3]).
← 3. The OECD Fundstat database (version: March 2024) comprises data on government R&D project funding in 19 OECD Member countries (Australia, Austria, Belgium, Canada, Czechia, Estonia, Finland, France, Germany, Japan, Ireland, Latvia, Lithuania, Norway, Portugal, Sweden, Switzerland, the United Kingdom and the United States) and the European Union from 2010 onwards. Administrative data on government R&D project funding offer potential for international comparative analysis (OECD, 2015[73]). While such data provide a foundation for accountability, stemming from the government funding processes that generate them, these records are often inconsistent across countries, complicating cross-national analysis. Despite limitations, project-level data can provide insights into the directionality of government R&D funds, with varying levels of quality and completeness. The Fundstat database is an evolving database overseen by the OECD Expert Group on the Management and Analysis of R&D and Innovation Administrative Data and has been used for the analysis of directionality for artificial intelligence R&D (Yamashita et al., 2021[86]) and COVID-19 R&D (Aristodemou et al., 2023[85]).
← 4. For example, efforts to improve the sustainability of regional or national electricity grids have been supplemented in some countries by growing engagement of public consumers in the energy system as prosumers (i.e. consumers and producers) and the evolution of community-scale integrated heat and power networks (IEA, 2022[74]).
← 5. The EC-OECD STIP Compass database incorporates a thematic portal on indigenous knowledge and communities which includes information on scores of initiatives from a wide range of countries. See: https://stip.oecd.org/stip/indigenous-portal.
← 6. Job losses spurred by sustainability transitions have been found to be up to 24% more costly in high-emission sectors compared to low-emission ones due to tendencies for impacted jobs to be concentrated among older workers in relatively high-paying jobs compared to educational attainment (OECD, 2025[72]). The creation of new jobs has largely benefited high-skilled workers.
← 7. OECD research estimates that boosting the performance of the average OECD country to the level of the top three country performers in the area of adult skill outcomes would generate a productivity increase of 17%. This could be achieved through policy to support skills accumulation, lifelong learning and movement of labour, among other types of initiatives (OECD, 2025[2]).
← 8. For example, the IEA estimates that more than a third of the emissions reductions required in 2050 to achieve net zero scenarios will come from technologies that are still in the lab (IEA, 2023[75]). In other words, unless certain pre-commercial technologies are rapidly proven and scaled up, net zero is likely out of reach. The fact that the other emissions reductions in the scenario (i.e., unrelated to those pre-commercial technologies) are very hard to achieve without substantial cost reductions and performance improvements is not deducible from this number but is a key part of achieving overall net zero. Achieving net zero, therefore, requires a mix of new R&D and demonstration activities together with the deployment and diffusion of existing technologies. Moreover, the resulting sustainability and digital transitions go beyond the adoption of new technologies and include investment in new infrastructures, the establishment of new markets, the development of new social preferences, and support for people of working age and communities in attaining new skills and opportunities as part of “just green transitions” (Causa et al., 2024[76]). Non-technological innovations, including social and process innovations, among others, will also make important contributions.
← 9. Decades of investment into fundamental research on mRNA largely facilitated the expedited development and deployment of mRNA-based vaccines during the COVID-19 pandemic response (OECD, 2023[77]). Further, mRNA vaccine platforms build on established vaccine technologies and have the potential to accelerate development and manufacturing processes without compromising on safety (Litvinova et al., 2023[78]).
← 10. Given the business sector’s importance for innovation, not only do governments contribute to the costs of business RDI, but also must ensure to create innovation-friendly framework conditions that incentivise companies to spend more on R&D.
← 11. Only a few countries have also used tax measures to provide directionality for R&D in specific priority areas, such as green or energy-related R&D. This includes Italy, which has a higher tax credit rate for certain types of technological innovation support for the environment, and Korea, which has an enhanced tax credit rate for R&D aimed at so-called “new growth and basic technologies” (273 technologies in 14 areas, including future cars, next-generation electronic information devices, energy and environment) and “National Strategy technologies” (OECD, 2025[84]).
← 14. See https://ised-isde.canada.ca/site/strategic-innovation-fund/en/about-program/program-guide.
← 18. See https://www.thebritishacademy.ac.uk/news/promising-results-from-first-year-of-innovative-grant-awarding-trial.
← 19. For example, in the Japanese cross-ministerial Strategic Innovation Programme, the powerful programme directors in each programme act as chairs of their respective promotion committees and are deemed essential for the promotion and smooth operation of inter-ministerial co-ordination and science-industry co-operation. In Norway’s Pilot-E, the programme manager oversees the secretariat of the steering group that gathers the three partner agencies. Another aspect of variation in these types of programmes concerns the types of individuals who manage the research portfolio. For example, Canada’s National Research Council’s Challenge Programmes generally use their own technical experts to manage portfolios. While they have had success in steering the research towards new ambitious areas (which is where their expertise lies), commercialisation has been more of a challenge – something they are looking at incorporating earlier on in their process. In contrast, the UK Research and Innovation Challenge Fund generally employs former industry leaders who found it more difficult to steer the research, but then have played a greater role in identifying market opportunities for teams to pursue at the commercialisation stage (OECD, 2024[41]).
← 22. See https://docs.google.com/document/d/19VSOwbxvtVuc67gkb_ZWWZVwaOkT3FgZp5pkPQDucLY/edit?tab=t.0.
← 23. For instance, many MOIPs related to achieving net zero carbon emissions are targeted directly at the 2030 and 2050 aims of the Paris Agreement for Climate Change.
← 25. See www.gov.ie/en/publication/27c78-impact-2030-irelands-new-research-and-innovation-strategy.
← 26. See www.creatingourfuture.ie/2022/07/minister-harris-publishes-more-than-18000-ideas-generated-from-national-brainstorm-creating-our-future.
← 27. See www.info.gouv.fr/organisation/secretariat-general-pour-l-investissement-sgpi/strategies-d-acceleration-pour-l-innovation
← 28. See www.economia.gob.cl/2023/11/22/gobierno-destinara-6-mil-millones-de-pesos-para-investigacion-de-litio-y-salares.htm.
← 29. The example of Sweden’s Strategic Innovation Programmes (SIPs) has shown that this can result in a strong role played by powerful players in mature industries to the detriment of the transformative potential of the missions. Each SIP is steered by an industry-dominated board, drawn from the industry, academia and the public sector, with industry generally being dominant. The final evaluation concluded that the SIPs mostly resulted in incremental innovation at the individual project level (Åström, 2021[79]).
← 30. For example, in the green transition, challenges for private investors include insufficient profitability compared to investments with similar risk profiles; difficulty assessing risks owing to information asymmetries between innovators and investors; lack of awareness and uncertainty around government priorities and regulations; and challenges in meeting “internal rate of return” requirements or “return on equity” thresholds. These imperfections in capital markets limit the amount of private capital available for low-carbon technologies (Montague, Raiser and Lee, 2024[80]).
← 31. Supply chain finance has emerged as a new tool to increase available internal capital in small firms, thereby encouraging investment in R&D and innovation activities. By combining the supply chain to build long-term stable trade relations, supply chain finance can also provide stable capital flow and lower financing costs for small and medium-sized enterprises. The supply chain-based financial model can provide short-term financial support for enterprises and meet their long-term funding needs.
← 32. Governments have long supported the development of venture capital and private equity investments, but this support is increasingly targeted towards green transitions using a variety of models that vary in terms of the level of public ownership and direction over investment decisions (Berger, Criscuolo and Dechezleprêtre, 2025[81]).
← 33. Analyses of the financing initiative reported in the STIP Compass database in 2023 show that some 17% of equity financing initiatives target the sustainability transition’s transformative goal. Most of these programmes support innovative start-ups and SMEs through the provision of seed and/or growth and late‑stage venture capital. Transformative equity-based financing is often administered through direct public equity funds or co-investment funds. There are comparatively few fund-of-fund initiatives. Most equity financing is also focused on net zero priorities. Some programmes are broader than this and aim to support various technology areas, such as cleantech, med-tech, precision agriculture and the circular economy. Roughly 25% of the credit/loan and debt/risk-sharing initiatives captured in the STIP Compass database relate to sustainability transitions. Relevant credit programmes most commonly target the development of new products and processes or the upgrade of existing ones. In general, these initiatives support innovation by offering loans with subsidised rates. There is comparatively less focus on providing working capital or financing an expansion to acquire existing technologies.
← 34. The obstacles and challenges to STI finance are not uniform across the different SDGs due to differences in financial and market structures, differences in the capital intensity of research and industrial activities, and structural differences in the share of public and private R&D funding. For example, obstacles to finance STI for clean energy will differ from those faced in the financing of research for global health challenges. Obstacles to finance STI for clean energy would involve a greater share of business financing from firms’ internal sources as well as from equity and capital markets, whereas obstacles to finance STI for research for global health challenges will rely more on public research funding by governments.
← 35. For example, progress on a range of issues – such as strengthening various linkages in STI systems (e.g. between business and academia, between different parts of government, and between science and society), enhancing firms’ skills and organisational capabilities, and reducing precarity in research careers – will contribute to STI system reforms that hasten progress on the transformative goals. Likewise, directing STI systems towards goals like resilience and inequality can facilitate progress on these long‑standing issues if transformation-friendly values are embedded in STI policymaking. Thus, the pursuit of the transformative goals provides an opportunity to promote structural reforms that address long‑standing issues in STI systems and vice versa (OECD, 2024[82]).
← 36. Persistence or absorption are alternative strategies focused on maintaining the system’s structure and function by mitigating risk and resisting change (Béné et al., 2012[68]).
← 37. The ability of a handful of lead countries to accelerate the global adoption of electric vehicles is often held up as an example of policy effectively leveraging this kind of change process. In this instance, economies of scale allowed for the generation of a self-perpetuating, non-linear cycle of technological advancement, cost reduction and learning effects (Eker et al., 2024[67]).
← 38. Public policy has its own positive and negative feedback dynamics that are also relevant for STI policymakers. According to (Edmondson, Kern and Rogge, 2019[83]), these include resource, interpretative and institutional effects, as well as socio-political, administrative and fiscal feedback.
← 39. Transformative change is likely to face resistance from influential coalitions interested in maintaining the status quo, as well as disadvantaged groups concerned about the negative impacts of radical change (Blühdorn, 2019[69]; Novy, Barlow and Frankhauser, 2022[70]). Dominant stakeholders generally have vested interests in maintaining established industries, technologies and practices and are often able to influence structural conditions, e.g. regulation, or mask the full costs of the status quo. Accordingly, transformation is generally spurred by exogenous pressure, which can arise from a slow-moving trend like demographic change or a sudden shock.