Policy Pathways Beyond the Shoreline

6. Leveraging island assets to boost development and deliver well-being

Abstract

The chapter calls for a place-based policy approach tailored to island contexts, moving beyond place-blind and sectoral strategies to harness islands’ unique assets, such as natural and cultural capital, strategic location, and strong community networks. It presents islands as innovation laboratories for Smart Specialisation Strategies, enhanced research-SME-government collaboration, digital transformation and skills development. A priority is the shift toward green, circular, and blue economies, promoting the modernisation and diversification of agriculture and fisheries and the development of sustainable tourism that balances economic, environmental, and social objectives. The chapter also emphasises the need for improved connectivity, and partnerships, through investments in transport, broadband, and energy infrastructure, e-services and inter-island or cross-border co-operation to support learning and scale. Ultimately, empowering people, culture, and communities (via education, talent retention, inclusive entrepreneurship, and heritage valorisation), is identified as the cornerstone of resilience, competitiveness, and well-being, ensuring that no island community is left behind.

Introduction

Islands are often portrayed as peripheral or structurally disadvantaged territories. Viewed through a place-based policy lens, however, they emerge as strategic spaces where green, blue and digital transitions can be designed and tested, with lessons that can be replicated elsewhere. Their compact scale, clear boundaries, rich natural and cultural capital and strong community ties make them well suited to experiment with integrated policy solutions. In Greece, for example, the island of Tilos has demonstrated the feasibility of hybrid renewable-energy systems and energy autonomy, while Lipsi has pioneered innovative approaches to eliminating single-use plastics, both serving as models promoted for replication across the Aegean. National initiatives such as GR-eco Islands build on these pilots, using selected islands as testbeds for renewable energy, water management, mobility and digital tools with the aim of extending successful approaches to other islands and regions.

This chapter calls for a place-based policy framework that goes beyond place-blind, sectoral approaches to harness the unique assets of island economies, natural capital, cultural heritage, strategic location and social capital. It highlights islands as “living laboratories” for Smart Specialisation Strategies (S3), digital transformation and skills development, and emphasises the shift toward green, circular and blue economies. It examines:

• why islands require a place-based policy approach;

• how innovation and smart specialisation can drive diversification and resilience;

• how circular, green and blue economies can underpin long-term competitiveness;

• how people, culture and communities can be empowered as agents of change; and

• how connectivity, governance and partnerships can enable implementation at scale.

By embedding territorial perspectives in national and regional policy design, governments can promote balanced development and ensure that no island community, particularly the smallest, most remote and most vulnerable, is left behind.

A place-based approach for island development

Moving beyond place-blind policies

Traditional place-blind and purely sectoral policies, although designed for administrative simplicity and uniformity, often overlook the diversity and complexity of island regions. Formulated at broad national or sectoral levels, they rarely capture the distinct geographical, ecological, socio-economic and cultural realities that differentiate one island from another. As a result, they can fail to address local vulnerabilities or leverage place-specific assets, leaving communities without the tailored support required for sustainable, inclusive and resilient development.

Place-blind approaches implicitly assume that national policies affect all territories in the same way. In practice, spatial heterogeneity means that identical measures often yield divergent outcomes across islands and regions. Recognising and addressing these variations is the cornerstone of a place-based policy perspective.

Key challenges and policy gaps

Building on the discussion in previous chapters, several areas illustrate where generic policy frameworks can prove inadequate for island contexts.

• Natural constraints and resource scarcity. Many islands face inherent physical limitations, such as scarce freshwater resources, limited arable land, fragile ecosystems and dependence on imported energy and food. Policies that ignore these constraints risk promoting unsustainable resource use, increasing exposure to shocks and accelerating environmental degradation.

• Economic concentration and limited diversification. Island economies often rely heavily on a small number of sectors, typically tourism, fisheries, public administration or construction. Without deliberate efforts to foster diversification and innovation, these economies remain highly vulnerable to external market shocks, seasonality and crises. Vulnerable populations, including low-income households, women and young workers in seasonal jobs, are often the first to bear adjustment costs.

• Connectivity and infrastructure challenges. Geographic isolation raises the cost of transport, logistics and digital connectivity. Uniform infrastructure policies rarely account for the scale of investment required to ensure affordable, reliable connections within and between islands. Tailored approaches that combine climate-resilient physical connectivity with robust digital networks are essential to reduce isolation and stimulate economic opportunities.

• Exposure to external and environmental shocks. Islands are particularly vulnerable to natural disasters, climate-related events and global economic volatility. One-size-fits-all national frameworks may leave them without adequate risk management, climate adaptation or social protection mechanisms, especially for vulnerable groups and the most remote islands.

• Biodiversity, ecosystems, and the blue economy. Islands host some of the world’s most unique and fragile ecosystems. Policies that fail to integrate biodiversity considerations or undervalue ecosystem services risk undermining the natural capital that supports livelihoods, including tourism, fisheries and cultural practices. Nature-based solutions and blue-economy strategies can transform these vulnerabilities into sources of sustainable, inclusive growth.

• Climate change impacts. Islands are at the frontline of climate change, facing rising sea levels, ocean acidification, saline intrusion and more frequent extreme weather events. National policies that do not incorporate local adaptation priorities, (such as coastal protection, disaster risk reduction or climate-proofed infrastructure), exacerbate exposure and long-term vulnerability.

• Governance and institutional capacity. Island governance arrangements often differ from those of larger regions, particularly where administrative fragmentation, special statutes or overlapping competences exist. Ignoring these institutional specificities can weaken policy implementation, overburden limited administrative capacity and reduce policy coherence across levels of government.

• Local knowledge and social capital. Island communities possess rich traditional knowledge, strong social networks and a deep understanding of local ecosystems. Policies that neglect this knowledge base miss critical opportunities for locally driven, culturally grounded and durable development outcomes.

Towards tailored, place-based solutions

Each island represents a distinctive combination of resources, capacities and constraints that shape its development trajectory. Policies tailored to these specific conditions are therefore essential to unlock potential and address challenges effectively. Recognising islands’ unique assets, whether natural resources, cultural heritage, human capital or strategic location, allows policymakers to build on endogenous strengths rather than impose externally defined models.

A place-based approach also enhances community participation and ownership. When policy objectives and implementation mechanisms align with residents’ lived realities and aspirations, initiatives are more likely to gain legitimacy, ensure continuity and achieve sustainable impact. This, in turn, strengthens social cohesion, supports inter-institutional collaboration and builds resilience to environmental and economic shocks.

OECD evidence shows that place-based strategies improve development outcomes when they are underpinned by robust multi-level governance, integrated policy design and long-term investment frameworks (OECD, 2023[1]) (OECD, 2020[2]).

Integrating the place-based perspective into structural policy

To mitigate the structural disadvantages of insularity and harness their potential, islands can integrate a place-based lens into traditional structural and sectoral policies. This requires explicitly recognising the interconnections between economic, social and environmental dimensions of well-being, and ensuring that sectoral policies, (such as those for infrastructure, education, innovation, human capital, health and social protection), are mutually reinforcing and adapted to local conditions.

For example, combining digital connectivity initiatives with education, health and tourism strategies can enable small islands to diversify their economies, enhance access to services and retain skilled youth. Linking renewable-energy programmes with local workforce development can strengthen energy security, create quality jobs and reduce energy poverty. Embedding social inclusion objectives in tourism, fisheries and mobility policies can ensure that vulnerable groups benefit from new opportunities.

Systematic territorial impact assessment of national policies is needed to anticipate and manage spatial disparities, including those affecting the most remote and least populated islands, and to ensure policy coherence across territories.

Types of place-based policies

Place-based policies can be grouped into two broad forms, both highly relevant for island economies:

• Policies that intentionally target specific territories. These are explicitly designed to address territorial disparities or seize territorial opportunities, as seen in dedicated Island Policies in several OECD countries. Within regions, they may focus on specific settlement types (e.g. small rural towns), functional territories (e.g. labour market zones) or strategic initiatives (e.g. innovation clusters or regional development programmes). Regional and local governments typically play a leading role in their design and implementation, often in partnership with civil society and the private sector.

• Policies with place-based consequences, though not explicitly territorial in intent. National measures such as tax incentives, education funding formulas, renewable-energy subsidies or social protection reforms can produce uneven spatial effects. Recognising and managing these unintended impacts, through territorial analysis, consultation with island authorities and co-ordination mechanisms, is crucial for ensuring coherence and equity (OECD, 2020[3]).

Principles of effective place-based regional policy

According to OECD analysis, effective place-based regional policy depends on co-ordinated, multi-level governance involving a broad range of stakeholders and tailored to the specific conditions of each territory (OECD, 2019[4]). The following characteristics define such approaches and are particularly relevant for islands.

Table 6.1. Characteristics of effective place-based regional policy

Dimension	Key characteristics
Problem recognition	Low productivity; underutilised regional potential; lack of competitiveness; inter-regional and interpersonal inequalities, including in small and remote islands.
Objectives	Enhance productivity and growth; improve quality of life and well-being across economic, social and environmental dimensions; reduce spatial inequalities.
Policy framework	Mobilise underused regional potential through programming; build on local strengths; develop regional innovation systems and circular economy initiatives.
Spatial orientation	Apply policies across all regions while adapting design and delivery to specific local conditions, including small, remote and sparsely populated islands.
Actors	All levels of government plus relevant non-governmental stakeholders (private sector, academia, NGOs, civil society, community organisations, indigenous groups where relevant).
Unit for policy intervention	Combine administrative and functional geographies (e.g. rural-urban linkages, functional areas, archipelagos, cross-border regions).
Time dimension	Ensure a stable, long-term framework while remaining responsive to emerging challenges and opportunities, including shocks and long-term climate risks.
Policy fields	Context-specific integration of economic, geographic, demographic, social, cultural and environmental characteristics.
Focus	Endogenous development leveraging local assets, knowledge and social capital.
Instruments	Broad toolkit including investment in human capital, infrastructure, business support, research and innovation, nature-based solutions and inter-actor co-ordination.
Operational approach	Promote cross-sectoral co-ordination, multi-level governance, inclusive dialogue with private stakeholders and citizens and systematic territorial impact assessment.

Note: This table summarises core principles of place-based regional policy with specific relevance for island regions.

Source: Adapted from OECD (OECD, 2019[4]) and related OECD regional policy work.

Monitoring island well-being and policy outcomes

Embedding place-based thinking in national strategies requires not only tailored policies but also robust systems to monitor what works, for whom and where. Three enabling conditions are essential:

• Robust subnational data and analysis. Disaggregated statistics at island or archipelago level, (including on income, jobs, skills, service access, environmental quality and exposure to risk), are needed to inform decisions and track progress. Where official statistics are limited, administrative data, community surveys and innovative data sources (e.g. satellite imagery) can complement existing systems.

• Well-being-oriented monitoring frameworks. Using multidimensional well-being indicators, aligned with OECD and national frameworks, helps to capture distributional impacts (e.g. for low-income households, women, youth, older persons and remote communities) and ensures that growth, inclusion and sustainability objectives are pursued together.

• Continuous dialogue with island communities. Regular consultation with local authorities, businesses, civil society and residents, including youth and marginalised groups, enhances the legitimacy of island policies, supports policy learning and ensures that monitoring results feed back into decision-making.

Through these measures, islands can move from structural dependency toward resilient and self-reliant development, contributing fully to national prosperity and global sustainability goals.

Innovation and smart specialisation

Policy considerations

Islands hold exceptional potential as natural laboratories for innovation, offering compact and connected environments where new ideas can be tested, adapted and scaled.

By leveraging their unique assets, islands can drive economic transformation, particularly through sectors like the blue economy, which presents untapped potential in coastal and marine industries such as offshore renewable energy, sustainable fisheries, and marine biotechnology. Similarly, innovation and smart specialisation strategies (S3) can foster the growth of high-value industries like digital services, sustainable agriculture, and clean technology. By focusing on innovation hubs and business incubators, islands can create diverse, high-value economies that transcend traditional reliance on seasonal tourism and low-productivity industries.

Leveraging technology, entrepreneurship and tailored Smart Specialisation frameworks will strengthen island’s sustainable competitiveness and resilience while also supporting inclusive, quality employment.

Policy priorities include:

• adapting Smart Specialisation Strategies (S3) to the specific contexts of island economies;

• building innovation ecosystems that connect research institutions, SMEs, civil society and local governments;

• accelerating digital transformation and skills development to boost competitiveness and inclusion; and

• ensuring that innovation policies address distributional impacts and leave no community behind.

Positioning islands as living laboratories for green, blue and digital innovation can advance sustainable transitions across the OECD area. Focus areas such as renewable energy, water and waste management, climate-resilient agriculture, digital connectivity and maritime technologies supported by innovation hubs and cross-island networks can empower islands to become leaders in sustainable transformation.

Islands as Laboratories for green, blue, and digital innovation

Islands offer distinctive conditions for experimentation and integrated innovation. Their compact geography, clear spatial boundaries and close community relationships foster feedback loops between technology, governance and citizens that are rarely observable elsewhere. These characteristics make islands natural “living laboratories” for testing solutions that integrate environmental sustainability, digitalisation and social inclusion under real-world constraints of remoteness, seasonality, small scale and limited administrative capacity.

Green innovation

Islands face strong incentives to reduce fossil-fuel dependence and enhance resource efficiency due to high energy import costs, abundant renewable potential and exposure to climate risks. They are well suited for demonstration zones that pilot smart grids, storage technologies, energy-efficient buildings, nature-based solutions and hydrogen applications. Partnerships connecting research institutions, utilities, municipalities and SMEs can generate evidence and models to inform broader national and regional energy transitions, while ensuring that low-income households and vulnerable groups benefit from efficiency gains.

Blue innovation

Blue innovation, anchored in sustainable maritime and coastal resource use, offers additional opportunities for diversification and value creation. Islands can lead in developing new value chains in aquaculture, blue biotechnology, marine renewables and coastal ecosystem restoration, while maintaining ecosystem integrity. Integrated maritime spatial planning and “blue clusters” linking research, fisheries, transport and tourism can reduce sectoral conflicts and promote cross-learning. Adaptive licensing frameworks and results-based funding can speed up deployment while ensuring high environmental and social standards.

Digital transformation

Digitalisation connects islands to wider markets and global knowledge networks. Reliable broadband and data infrastructure can reduce isolation and enable growth in creative industries, e-government and digital services. Digital tools such as digital twins, sensor networks and early-warning systems can improve climate adaptation and disaster preparedness by modelling energy, water, mobility and coastal risks. Strengthening digital skills, cybersecurity and data governance is vital to ensure inclusiveness and equitable access to digital benefits.

Integrating green, blue and digital transitions

Systemic innovation emerges at the intersection of the green, blue and digital transitions. Renewable micro-grids can power desalination plants, electric ferries or digital tourism services, closing resource loops and reducing emissions. Challenge-based public procurement can stimulate cross-sector collaboration among SMEs, universities, social enterprises and communities, while regulatory sandboxes allow controlled testing of emerging technologies such as autonomous vessels, community energy trading or digital participation platforms.

Equity considerations should be built into these initiatives from the outset, by assessing who gains, who risks being left behind and what complementary social and skills policies are needed to support fair transitions.

Governance and financing mechanisms

Effective governance and finance are key enablers of innovation. Multi-level co-ordination can align national programmes, EU and other international initiatives and local actions, reducing project fragmentation and administrative burden on small island authorities.

Dedicated Island Innovation Hubs can:

• pool technical expertise;

• provide incubation services for start-ups and social enterprises;

• support community-driven innovation; and

• manage open data platforms linked to S3 strategies and well-being indicators.

Peer learning across islands, (for example, through the EU Clean Energy for EU Islands Initiative and OECD regional networks), can accelerate replication and diffusion of successful approaches. Technical assistance and shared service arrangements (e.g. joint project development units across islands) can help overcome capacity constraints and improve access to funding.

A people-centred approach to innovation

Sustained innovation depends on community participation, trust and inclusion. Policies should foster social dialogue, gender balance and youth engagement to ensure that technological change reinforces local ownership and social cohesion. Citizen assemblies, participatory foresight exercises and co-design processes can help set innovation priorities and ensure they align with community needs.

Monitoring frameworks should assess outcomes not only in terms of productivity and investment but also well-being, employment quality, equity and biodiversity, consistent with the OECD well-being lens.

Smart specialisation strategies and innovation

The rationale for smart specialisation in island contexts

The core rationale of Smart Specialisation Strategies is to focus policy efforts and resources on a small number of well-defined priorities, sectors or activities with the greatest growth and innovation potential (Foray et al., 2012[5]). The objective is to raise regional competitiveness and cohesion by fostering innovation, productivity and job creation.

Given their geographic isolation and limited resources, islands face structural vulnerabilities. Addressing these requires a multifaceted approach centred on diversification, local resource use, resilience and collaboration. S3 frameworks provide an effective vehicle for achieving these aims, particularly when they explicitly incorporate environmental and social goals.

Linking S3 to island specificities

Smart Specialisation can be tailored to island contexts through the following elements:

• Identification of island advantages. Analyse assets, capabilities and distinctive features (such as natural resources, cultural heritage, research capacity and social capital) to guide targeted investments.

• Addressing island challenges. Integrate responses to isolation, seasonality, ageing, exposure to megatrends and climate risks through tailored S3 measures (e.g. sustainable tourism, climate-resilient agriculture, low-carbon transport).

• Promoting niche industries. Focus on areas with clear advantages such as renewable energy, marine biotechnology, sustainable fisheries, creative industries and digital services adapted to small markets

• Fostering entrepreneurship. Support local SMEs and social enterprises through targeted finance, mentoring, training, entrepreneurship education and networking opportunities, with particular attention to women and youth.

• Encouraging research and innovation. Promote collaboration among academia, industry, public bodies and communities to address local environmental and social challenges, including through living labs and citizen science.

• Enhancing connectivity and collaboration. Strengthen inter-island, mainland and international co‑operation to enable knowledge exchange, economies of scale and resource sharing.

• Embedding sustainability and resilience. Incorporate circular economy models, conservation practices and climate adaptation into S3 frameworks, including explicit targets and monitoring indicators.

Aligning public investment with local capacity

Public investment should focus on transforming local assets into higher value-added activities rather than simply expanding formal high-technology R&D. This approach is especially relevant for islands, where smaller market size and limited research capacity can constrain conventional innovation pathways.

Innovation strategies should go beyond technology, recognising opportunities for incremental, organisational and social innovations in traditional sectors, such as agriculture, construction, fisheries and tourism, where local knowledge can drive productivity gains, sustainability improvements and better job quality.

Policy learning and innovation networks can help overcome fragmentation and foster peer exchange across islands and regions (see Box 6.1).

Leveraging S3 for sustainable growth

For islands, maximising the potential of limited assets and resources while ensuring sustainable economic growth is imperative. Smart Specialisation Strategies offer a targeted and evidence-based framework to add value to key sectors (such as tourism, agriculture, fisheries and light industry), while supporting diversification into new areas where islands have a comparative advantage.

By harnessing their unique strengths, islands can increase productivity, boost innovation in existing sectors and create new opportunities for sustainable and inclusive development. Explicit attention to distributional effects, (for example, through inclusive entrepreneurial discovery processes and targeted support to disadvantaged groups and remote islands), can help ensure that the benefits of smart specialisation are widely shared.

Box 6.1. Characteristics of an enabling environment for innovation

The OECD identifies four key characteristics of an enabling environment for innovation:

• A skilled workforce, capable of developing, adopting and diffusing new technologies.

• A sound business environment that supports investment in knowledge-based capital and the scaling of innovative firms.

• A knowledge system that effectively produces and disseminates innovation across the economy and society.

• Policies that strengthen entrepreneurship and green markets, while equipping consumers with skills to engage in sustainable innovation.

Policy lesson. Island innovation strategies will be more effective when they simultaneously address skills, business conditions, knowledge systems and pro-environmental incentives, rather than treating innovation solely as a technology issue.

Source: (OECD, 2010[6]).

SMEs and business development

Small and medium-sized enterprises (SMEs) are the backbone of many island economies. They provide most employment opportunities and are central to local value creation, innovation and community well-being. However, their growth potential is often constrained by structural factors such as small domestic markets, high transport and energy costs, limited access to finance and skilled labour, and administrative burdens.

These pressures are often compounded by high operating and tax burdens, severe seasonality in tourism-dependent activities and persistent labour shortages in key skilled professions, which together reduce incentives and capacity for long-term investment and firm upgrading.

The COVID-19 pandemic further exposed these vulnerabilities, disrupting trade and investment flows and highlighting the need for greater economic diversification and resilience.

Despite these challenges, island SMEs possess distinctive assets that can be turned into competitive advantages. Many operate in close-knit communities, have strong local identities and traditions and are rooted in unique natural and cultural environments. These characteristics can support three broad competitive strategies:

• Product differentiation. SMEs can strengthen their market position by offering high-quality or distinctive goods and services that reflect local culture, resources or sustainability practices, including eco-labels and fair working conditions.

• Network collaboration. Co-operation among local firms through partnerships, clustering, shared infrastructure and common standards, can help SMEs overcome isolation, access new markets and integrate into broader value chains.

• Authenticity and place branding. Islands can leverage their cultural and environmental uniqueness to attract consumers seeking authentic, sustainable and experience-based products and services.

Building on these strengths requires targeted and coherent policy action. To enhance resilience, competitiveness and social inclusion, policy frameworks should focus on creating the conditions for SMEs to innovate, scale and connect to wider markets. Key priorities include:

• developing skills and capabilities that enable SMEs to adapt to the green and digital transitions;

• strengthening competitiveness and network integration, particularly by supporting digital adoption, literacy and cybersecurity;

• reinforcing links between research, training institutions and entrepreneurship through partnerships, innovation networks and public-private collaboration;

• fostering clusters and innovation districts that connect island enterprises with mainland and international actors;

• expanding access to business support services and incubators, including mentoring, training and finance for micro-enterprises and social enterprises;

• supporting export capacity, for example through targeted programmes such as national branding initiatives or export-manager schemes for island SMEs; and

• encouraging participation in global value chains via investment promotion and foreign direct investment attraction strategies that respect environmental and social standards.

These measures can help islands build more dynamic, innovative and outward-looking SME sectors, securing employment, enhancing productivity and embedding islands more firmly in sustainable global markets. Particular attention should be paid to SMEs led by women, youth and under-represented groups, including through tailored advisory services and financing instruments.

Sustainable and circular economies

Policy considerations

Islands can play a leading role in the transition toward sustainable, circular and resilient economies. Their integrated land-sea systems make them ideal environments for piloting innovative approaches to resource efficiency, renewable energy, low-carbon mobility and regenerative tourism. By adopting green and blue development models, islands can reduce vulnerabilities, optimise resource use and strengthen long-term competitiveness, while ensuring a just transition for affected workers and communities.

Developing circular value chains, linking sectors such as waste management, fisheries, agriculture, tourism and construction, can transform resource constraints into opportunities for inclusive growth. Policy frameworks should support eco-certification, small-scale agroecological innovation, sustainable fisheries, bio-based industries and renewable energy deployment, enabling islands to pursue low-carbon, climate-resilient development pathways.

Green growth and the circular and blue economies

The green growth opportunity for islands

The natural environment is often among an island’s most valuable economic assets, particularly for remote territories. However, the interplay between economic activity, infrastructure and environmental pressures creates complex sustainability challenges. Agriculture, fisheries, mining, tourism and waste management often generate competing demands for limited land, energy and water resources. Climate variability and marine pollution further intensify these pressures.

Green growth provides a framework to reconcile economic expansion with environmental integrity. It focuses on fostering growth while ensuring that natural assets continue to provide the ecosystem services and resources upon which well-being depends (OECD, 2022[7]). Green growth policies can serve as powerful development engines for islands by:

• Increasing productivity through energy efficiency, innovation and reduced consumption.

• Stimulating green markets for goods, services and technologies.

• Encouraging environmental protection, recycling, and sustainable resource use.

For islands, transitioning toward green growth requires strategies that focus on circular economy principles, energy efficiency, eco-production, sustainable consumption and zero-waste systems. Moving toward a low-carbon and resource-efficient economy can enhance environmental protection, create decent jobs and support innovation in both production and consumption chains (Box 6.2).

The circular economy imperative

The circular economy is particularly relevant for islands due to their small scale, isolation and limited access to external markets. It promotes the reuse, repair and recycling of materials, transforming waste into resources and reducing dependency on imported inputs.

Circular strategies aim to minimise emissions and resource extraction, using technologies and business models that close material loops. Examples include renewable energy deployment, sustainable waste management, industrial symbiosis, eco-design and the recovery of valuable minerals and nutrients from waste streams. Properly designed circular systems can help ensure that infrastructure, energy, waste and water services are efficiently managed and that synergies between sectors are maximised (OECD, 2020[8]).

Distributional aspects are important: well-designed circular policies can lower costs for households and SMEs, but poorly designed measures may raise prices or impose burdens on low-income groups. Social dialogue and careful impact assessment are therefore essential.

Decarbonisation, climate adaptation and renewable energy transitions

The 2015 Paris Agreement recognised that islands are among the most fossil-fuel-dependent territories in the world. Strengthening decarbonisation and energy efficiency requires targeted investment in biomass, geothermal, wind and solar energy, as well as in energy-efficient buildings and transport.

Renewable energy solutions must be tailored to local contexts. For some small islands, renewable self-sufficiency may be less feasible than a combination of local generation, interconnections and storage due to land constraints or limited capacity. Flexible strategies that combine renewable generation, imports, storage and demand-side management are therefore essential (Planistat & Dunbar, 2003[9]).

Climate adaptation should be integrated into all major investment and planning decisions, including:

• climate-resilient coastal protection and nature-based solutions;

• infrastructure design that accounts for sea-level rise and extreme weather;

• disaster risk reduction and early-warning systems; and

• financial instruments such as insurance, contingency funds and resilience bonds.

National and supranational programmes can play a catalytic role. For instance, the European Commission’s “Clean Energy for EU Islands Initiative” provides long-term support for islands transitioning to renewable energy systems through technical assistance, capacity building and financing mechanisms (EU, 2017[10]). Similar approaches can be adapted in non-EU contexts.

The blue economy: linking oceans and resilience

The blue economy connects the sustainable use of marine resources with climate resilience and inclusive growth. For many islands, the ocean represents both their greatest opportunity and most significant vulnerability. Sustainable management of fisheries, aquaculture, marine biotechnology and renewable marine energy can foster economic diversification while preserving marine ecosystems and cultural values.

The “Blue Economy for Green Islands” approach, promoted by the UNDP and others, reflects this integration by combining blue and green economy objectives, linking biodiversity conservation, climate adaptation and socio-economic development (UNDP, 2022[11]) (SISP, 2022[12]). Such approaches demonstrate how marine resource management, innovation and social well-being can be mutually reinforcing when guided by coherent governance frameworks.

Box 6.2. Islands and the bioeconomy

The European Commission defines the bioeconomy as the part of the economy that uses biological and renewable resources to produce energy, materials and food. It supports environmentally friendly goods and services and promotes biological processes and legislation aimed at reducing the consumption of natural resources.

For islands, the bioeconomy offers pathways to modernise and diversify local industries, create new green jobs and develop low-carbon value chains. By using renewable biological inputs, islands can reduce dependence on imported materials, increase self-sufficiency, and accelerate their transition to a circular economy.

Policy lesson: Island bioeconomy strategies should prioritise sustainable use of local biological resources, value-added processing and skills development, while safeguarding biodiversity and ensuring that benefits reach local communities and small producers.

Agriculture, fisheries, and rural economic diversification

Strengthening traditional sectors through innovation

Agriculture and fisheries remain vital for development, food security and employment in many island economies. However, they often face structural constraints such as small scale, fragmented production, limited infrastructure, ageing farmers, exposure to climate risks and global market volatility.

Policy priorities include:

• modernising agri-food and fisheries sectors to boost productivity, quality and competitiveness;

• diversifying rural economies by linking agriculture and fisheries with tourism, local food industries, ecosystem services and bio-based industries; and

• improving working conditions and income security, including for seasonal and informal workers.

Aligning agriculture and rural policy with Smart Specialisation Strategies can unlock synergies between research, innovation and sustainable development. Collaboration between universities, research institutions, advisory services and producers can enhance sectoral competitiveness. Digital technologies, such as precision agriculture, traceability tools and e-commerce, can strengthen value chains and help small producers connect to markets.

For smaller-scale agricultural systems, co-operative models can help achieve economies of scale, support innovation and build stronger market positions (Box 6.3).

Box 6.3. The co-operative model in Trentino (Italy)

Agriculture in the Autonomous Province of Trento (Italy) has historically consisted of small, family-run farms averaging 1.5 hectares each. To overcome scale constraints, Trentino developed a multi-level co-operative system that integrates production, marketing and finance.

• First-level co-operatives provide direct support to farmers and manage local production.

• Second-level consortia co-ordinate marketing and distribution, improving efficiency and enabling collective market access.

• The Federation of Trentino Cooperatives represents over 500 enterprises and 280 000 members, uniting producers across sectors and supporting innovation, quality and sustainability.

This integrated model shows how co-operation and vertical integration can enhance efficiency, strengthen bargaining power and promote sustainable rural development, providing useful lessons for islands with fragmented agricultural structures

Source: (OECD, 2014[13])

Sustainable fisheries and aquaculture

Across the OECD, countries are reforming fisheries governance to promote sustainability and innovation. Aquaculture is emerging as a key sector for employment and development in areas with limited economic alternatives and is expected to drive future fish production.

Current reforms focus on ensuring the long-term viability of fisheries by addressing environmental limits and introducing new production technologies. Policy instruments increasingly emphasise public services (management, research, infrastructure and training), over direct subsidies, encouraging shared responsibility and private investment (OECD, 2017[14]).

For islands, sustainable fisheries and aquaculture policies should:

• align harvest levels with scientific advice;

• strengthen community-based management and co-management schemes;

• promote value-added processing and quality labels; and

• support diversification of livelihoods in fishing communities, including for women and youth.

Sustainable tourism

Building a more resilient and balanced tourism model

Tourism is a major economic pillar for most island economies. Before the COVID-19 pandemic, the tourism sector accounted on average for 4.4% of GDP, 6.9% of employment and 21.5% of service exports across OECD countries (OECD, 2021[15]).

However, tourism growth on small islands has often been uneven and unsustainable, generating seasonal pressures on infrastructure, ecosystems and communities. Over-tourism, as seen for example in Santorini (Greece), can strain transport networks, water supply and waste systems, reduce housing affordability and undermine local quality of life (OECD, 2020[16]). Seasonal employment patterns and informality can also exacerbate income insecurity.

Nevertheless, tourism remains a powerful engine for diversification and local development when managed sustainably. A balanced policy approach can spread benefits beyond traditional destinations, integrate tourism with local value chains and preserve the natural and cultural assets on which the industry depends.

Policy priorities for sustainable tourism

To harness tourism as a driver of sustainable and inclusive development, island policymakers should:

• develop and manage local destinations through integrated planning that links tourism with transport, environment, housing and innovation strategies;

• invest selectively in sustainable infrastructure, including ports, water and waste systems and renewable energy;

• integrate tourism with agri-food, creative and cultural sectors, promoting certified local products and experiences;

• advance digitalisation across the tourism value chain (e.g. data-driven visitor management, digital marketing, online booking platforms for small providers);

• address skills development to enhance service quality and local employment opportunities; and

• introduce visitor management tools, such as carrying capacity assessments, differentiated fees or reservation systems, where pressures are high.

Box 6.4. Managing tourism development for sustainable and inclusive recovery from COVID-19

The COVID-19 pandemic led to an unprecedented 75% decline in international travel in 2020, with island destinations among the most affected. The crisis exposed the vulnerability of tourism-dependent economies but also created momentum for rethinking development models.

Modern tourism policy increasingly emphasises environmental sustainability, inclusiveness, diversification and innovation. Visitor management now takes precedence over volume-based growth, ensuring that local ecosystems and communities benefit from tourism.

Key actions for sustainable recovery include:

• rethinking tourism models with a stronger focus on environmental and socio-cultural sustainability;

• mainstreaming green and digital transitions across tourism policies and business practices;

• supporting eco-responsible practices in transport, accommodation, food and attractions; and

• using technology and data to manage visitor flows and reduce pressures on local environments and communities.

Policy lesson: For islands, recovery strategies should prioritise resilience and well-being, favouring high-value, low-impact tourism that supports quality jobs and community benefits over short-term volume gains.

Source: (OECD, 2021[15])

Empowering people, culture, and communities

Policy considerations

Sustainable development in island regions relies on empowering people, culture and communities as agents of transformation. Strengthening human capital and leveraging cultural and natural heritage are essential to enhancing resilience, innovation and local capacity to manage green and digital transitions.

The central policy objective is to enable island populations to build sustainable and inclusive futures through targeted investment in education, skills and talent retention, while valorising cultural and natural assets as drivers of local identity, well-being and economic opportunity.

Policy priorities include:

• Develop education and training systems tailored to island needs, with a focus on green, digital, and maritime skills.

• Valorise cultural and natural heritage to promote creative industries, sustainable tourism, and community-based initiatives.

• Encourage inclusive entrepreneurship and social innovation, particularly by empowering youth, women, and local leaders.

By fostering skills development, creativity, and civic participation, islands can diversify their economies, strengthen social cohesion, and retain local talent. Integrating education, culture, and innovation within cohesive sustainability frameworks allows islands to unlock their full human potential, building communities that are resilient, inclusive, and future-oriented, rooted in their heritage but open to global opportunities.

Human capital

Strengthening skills and opportunities for island communities

Islands face unique challenges in building and retaining human capital due to geographic isolation, limited institutional capacity and demographic pressures such as out-migration and ageing. Addressing these challenges requires education and training systems that respond to local labour-market needs, support quality jobs and facilitate lifelong learning.

Policies should promote tertiary and vocational education and training (VET) tailored to island economies, targeting not only students but also adults, self-employed workers and entrepreneurs (OECD, 2019[17]). Collaboration between employers, education providers and local authorities, through internship, apprenticeship and dual-training schemes, can strengthen skill matching, productivity and income. Special attention should be given to groups at risk of exclusion, including young people not in employment, education or training (NEETs), long-term unemployed, migrants and women returning to the labour market.

Youth and talent retention

Many islands face persistent brain drain, with young and skilled workers leaving for mainland opportunities. Reversing this trend requires co-ordinated strategies that make islands attractive places to live, learn, and work. These strategies should focus on youth employment, entrepreneurship, and local innovation ecosystems that provide meaningful career prospects.

Useful steps include (CoR, 2018[18]):

• Identifying current and future talent needs and co-ordinating local actors to align skills with opportunities.

• Targeting key sectors such as renewable energy, tourism, maritime logistics, and digital services, for talent recruitment and retention.

• Establishing local talent attraction plans and mentorship programmes.

• Improving broadband connectivity and developing island-specific youth strategies.

By fostering knowledge-intensive and inclusive labour markets, islands can transform their demographic challenges into opportunities for innovation and community renewal.

Unlocking cultural and natural capital

Culture and nature as productive assets

Cultural heritage and biodiversity are core components of island identity, well-being and competitiveness. When managed sustainably, they can diversify economies, create jobs and enhance territorial cohesion. Recognising cultural and natural capital as integral forms of economic and social wealth situates them at the heart of place-based development strategies.

Managing pressures and integrating planning

Islands’ ecosystems and heritage sites face increasing pressures from tourism, limited land availability, climate change and natural hazards. Integrating ecosystem-service valuation and cultural asset inventories into spatial planning and public budgeting strengthens conservation and guides infrastructure investment. Implementing natural-capital accounting, in line with OECD and EU methodologies, supports transparent decision-making on conservation and development trade-offs.

Sustainable tourism and community benefit

Tourism is the main interface between heritage and economic activity on islands. Transitioning from high-volume to high-value tourism enhances income while reducing environmental stress. Key measures include:

• Applying differentiated visitor fees and eco-certification schemes.

• Developing destination-management plans that define carrying capacities.

• Allocating a portion of tourism revenues to community-managed conservation or heritage funds.

Creative industries and local identity

Creative and cultural industries, rooted in traditional knowledge and innovation, represent a growing source of sustainable employment and identity reinforcement. Support for creative clusters, digital platforms for local products and cultural events can expand market access and enhance territorial branding. Integrating cultural content into education and VET programmes can strengthen local identity and encourage entrepreneurship among youth.

Financing conservation and restoration

Nature-based solutions, (such as reforestation, blue carbon projects and coral reef rehabilitation), create jobs and provide ecosystem services, including coastal protection and carbon sequestration. Payment for ecosystem services and results-based financing mechanisms can reward verified community conservation outcomes. Strong monitoring and verification systems help attract blended public-private investments while ensuring integrity and transparency.

Governance and institutional coherence

Effective governance is essential to integrate cultural and natural capital into broader policy frameworks. Aligning biosecurity, fisheries, spatial planning, tourism and cultural policies under a unified cultural and natural capital governance model can improve consistency and accountability. Creating Cultural and Natural Capital Units within national or regional administrations can facilitate data co-ordination and annual “state-of-the-assets” reporting, improving investor confidence and public awareness.

Digital technologies expand access and protection for cultural and natural assets. Tools such as digitised archives, 3D mapping, virtual exhibitions and digital storytelling allow for broader educational and tourism engagement. Citizen science and remote sensing improve biodiversity monitoring and early-warning systems. Clear data governance and ethical frameworks must ensure equitable access, cultural sensitivity and fair benefit-sharing.

Community empowerment remains central: participatory mapping, heritage co-operatives, community-based tourism and inclusive education programmes reinforce stewardship and local value creation. Collaboration with indigenous and traditional knowledge holders further strengthens adaptive capacity and cultural continuity.

Connectivity, governance, and partnerships

Policy considerations

Sustainable transformation in island economies depends on strengthening connectivity, governance and partnerships to overcome isolation and foster integration. Islands need robust infrastructure, digital systems and co-operative governance frameworks that enable them to participate fully in national, regional and global networks.

The main objective is to create enabling conditions for integration and resilience through co-ordinated investments in infrastructure, digitalisation and collaborative governance, underpinned by climate resilience and inclusive access to services.

Policy priorities include:

• improving physical, digital and energy connectivity to enhance access to markets, services and opportunities;

• reinforcing multi-level governance and partnerships among local, national and regional actors for coherent policymaking; and

• leveraging inter-island and cross-border networks to scale innovation, pool resources and share good practices.

Connectivity and services

Islands face high infrastructure costs and limited economies of scale, affecting their ability to provide efficient transport and essential services. These constraints impact both residents’ quality of life and business competitiveness, often disproportionately affecting small and remote communities, low-income households and people with reduced mobility.

Ensuring equitable access to transport, energy, digital networks, education, healthcare and social services is essential for inclusive growth and territorial cohesion.

Areas for policy action include:

• Transport infrastructure. Prioritise climate-resilient, low-emission transport investments (e.g. low-emission ferries, efficient ports, hybrid air links) that balance accessibility, affordability and environmental impact. Integrated ticketing and demand-responsive transport can improve access in sparsely populated islands.

• Digital infrastructure. Extend high-speed broadband and 5G networks to all islands. Promote “Smart Island” initiatives integrating ICT, energy, transport and waste management (Box 6.5). Support digital inclusion initiatives for individuals and SMEs that risk being left behind.

• Utilities. Invest in renewable energy, desalination, water recycling and waste management to enhance self-sufficiency and reduce import dependence. Incorporate climate resilience and circular economy principles into infrastructure planning.

• Education and healthcare services. Use digital tools such as distance learning, telemedicine and tele-counselling to address scale and access challenges. Strengthen teacher and medical workforce retention through incentives, professional development and housing solutions.

• Social services. Support local welfare initiatives addressing ageing, mental health, youth engagement and social isolation. Empower local communities to co-design social programmes and ensure that vulnerable groups are reached.

Given the high cost of providing infrastructure and services, islands require innovative financing models such as public-private partnerships (PPPs), blended finance and green or blue bonds. Investing in energy efficiency, circular infrastructure and digitalisation can lower long-term operating costs and enhance resilience.

Box 6.5. The Smart Islands Initiative

The Smart Islands Initiative is a collaborative, bottom-up effort by European island communities to accelerate the transition toward low-carbon and digitally integrated economies.

Key components include:

• an integrated approach co-ordinating governance of energy, transport, ICT, water and waste services through circular economy principles;

• “living labs” and pilot projects to test integrated infrastructure systems under real-life conditions; and

• collaborative governance that strengthens local authorities’ capacity and promotes co-operation between public institutions, businesses and research communities.

Policy lesson: Smart Island approaches show how integrated planning, innovation and community engagement can help islands reduce costs, improve services and advance green and digital transitions simultaneously.

Source: Smart Islands Initiative (2018[19])

Networks and co-operation

Islands benefit significantly from participating in institutional and business networks that amplify their collective voice and strengthen collaboration. Facing common challenges such as remoteness, small markets and environmental vulnerability, co-operation provides a powerful platform for knowledge exchange, policy innovation and joint action.

Numerous island networks exist across Europe and beyond, reflecting a range of thematic, political and technical objectives (Box 6.6). These collaborations generate shared value and tangible benefits, helping islands overcome constraints that would be difficult to address individually. According to (OECD, 2011[20]), the main advantages and common objectives of domestic and international co-operation include:

• achieving critical mass by pooling resources in research, education and innovation;

• sharing knowledge and learning to promote policy transfer and institutional adaptation;

• responding to transnational challenges such as fisheries management, environmental protection and disaster resilience;

• improving accessibility by sharing infrastructure and service-delivery solutions; and

• fostering innovation and entrepreneurship through joint branding, shared R&D and participation in international programmes.

Through such co-operation, islands can transform structural constraints into opportunities for collective innovation, strengthen their international visibility and accelerate progress toward sustainable and inclusive growth.

Box 6.6. Examples of island networks

• Conference of Peripheral Maritime Regions (CPMR) Islands Commission: Represents regional island authorities advocating for tailored island policies and EU recognition of insularity.

• European Small Islands Federation (ESIN): Unites small islands to strengthen identity, share good practices and inform EU policymaking.

• Observatory on Tourism for Islands Economy (OTIE): Conducts research and supports tourism planning for island destinations.

• Local2030 Islands Network: Facilitates knowledge exchange for SDG implementation among island regions worldwide.

• Sustainable Greek Islands Network (DAFNI): Co-ordinates sustainable development projects among Aegean and Ionian islands and leads the Smart Islands Initiative.

Policy lesson: Participation in island networks can help small and remote islands access expertise, funding and political visibility that would be difficult to mobilise individually, thereby accelerating implementation of place-based strategies.

Governance, capacity and financing

Connectivity and co-operation need to be underpinned by robust governance arrangements, adequate administrative capacity and predictable financing. Key elements include:

• Multi-level co-ordination. Clear roles and responsibilities, inter-ministerial co-ordination units and regular dialogue platforms help align island strategies with national and EU frameworks, avoid duplication and ensure policy coherence.

• Local capacity building. Many island authorities face constraints in planning, project preparation and implementation. Targeted training, secondment schemes, shared service centres and technical assistance can strengthen capacity to design and manage projects, apply for funding and monitor results.

• Innovative financing. PPPs, blended finance, green and blue bonds and programmatic approaches can mobilise private capital while protecting the public interest. Simplified procedures and tailored support can improve island access to cohesion, recovery and other funding instruments.

Conclusions

Islands should no longer be treated solely as peripheral territories. When approached through a place-based policy lens, they emerge as strategic laboratories where green, blue and digital transitions can be implemented more rapidly, inclusively and safely. Achieving this requires moving beyond uniform, sectoral policies toward tailored strategies that align infrastructure, skills, innovation and environmental stewardship with each island’s specific assets and limitations.

A new generation of formal “island policies” can:

• set measurable well-being objectives, including distributional targets for vulnerable groups and remote islands;

• apply territorial impact assessments to national measures; and

• establish multi-level delivery compacts that connect local, regional, national and EU or international actors through shared project pipelines and financing frameworks.

Innovation policy should position islands as living laboratories for sustainable transformation. Through entrepreneurial discovery processes, island-specific advantages can be identified and translated into Smart Specialisation priorities supported by Island Innovation Hubs. Tools such as regulatory sandboxes and challenge-based procurement can safely test emerging solutions, ranging from community energy markets and autonomous vessels to smart grids and digital twins for water, mobility and coastal risks. Open data platforms and sensor networks can provide the evidence base to scale successful models across archipelagos and to the mainland.

Economic resilience depends on diversification and quality jobs. The modernisation of agriculture and fisheries, supported by digital tools, advisory services and research partnerships, should be complemented by sustainable aquaculture and high-value food brands developed through co-operatives and clusters. Tourism must evolve from volume to value, guided by destination-management plans that define carrying capacities, introduce differentiated visitor fees and reinvest revenues in conservation and cultural heritage. Creative and cultural industries can be promoted as drivers of identity, year-round employment and balanced territorial development.

Green, circular and blue economies provide a unifying framework for this transformation. Integrated land-sea planning can close resource loops linking waste, water, energy, agriculture, fisheries and tourism. Renewable micro-grids, energy storage and efficiency upgrades can reduce import dependence, while hybrid systems can sustain smaller islands on viable decarbonisation paths. Maritime spatial planning should guide the development of marine renewable energy, blue biotechnology and sustainable fisheries, protecting biodiversity while attracting long-term investment. Climate adaptation and disaster risk reduction must be embedded across policies and investments.

Ultimately, people and institutions determine the success of these transitions. Policies should fund targeted vocational and higher education in green, digital and maritime sectors, expand apprenticeships and support the return or retention of skilled youth and women entrepreneurs. Natural-capital accounting should integrate heritage and biodiversity into fiscal planning, making environmental trade-offs explicit. Community ownership mechanisms, (such as citizen assemblies, participatory mapping, co-operatives and community-based tourism or energy projects), can ensure local legitimacy and reinforce social cohesion.

Connectivity remains a key enabler. Bridging physical, digital and energy divides require selective investment in ports, inter-island transport, broadband and resilient grids, complemented by e-government, telemedicine and remote education to ensure equitable access to services. Regional co-operation and island networks should pool procurement, harmonise standards and scale investment, supported by programmatic public-private partnerships and streamlined technical assistance to attract private capital.

Finally, risk management must be proactive. Governance arrangements should prevent project fragmentation through hub-and-network models, mitigate over-tourism and external shocks through diversification and resilience funds, and address skills shortages via targeted training and mobility programmes. Transparent environmental and social impact assessments and public dashboards can strengthen accountability and citizen trust.

With this integrated, people-centred and place-based approach, islands can move from territories historically viewed as vulnerable to leaders of sustainable transformation, delivering higher productivity, stronger social cohesion and better well-being, while ensuring that no community is left behind.

References

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