Smart Financial Instruments for the Twin Transition: Green and Digital Innovation
The future of European competitiveness depends on its ability to deliver two massive transformations at once: the green transition and the digital transition.
Together, they form the “twin transition” — a defining challenge for innovation systems across Europe.
Financial instruments must now evolve to meet this reality. Supporting either green or digital innovation separately is no longer enough. The next generation of innovation financing must be capable of enabling projects that are simultaneously sustainable, technological, and transformative.
The Financial Gap in Twin Transition Innovation
Despite policy ambitions, many SMEs, startups, and regions still struggle to access funding tailored to twin transition needs. Green innovation often faces longer development times and higher upfront costs, while digital innovation moves at a faster, riskier pace.
When the two are combined — such as in green digital solutions for energy, mobility, or agriculture — traditional financial instruments often fall short, being too rigid or sector-specific.
As a result, promising innovations risk stalling at early stages due to financing models that were not designed for integrated transformation.
The Case for Smarter Financial Instruments
Meeting the demands of the twin transition requires financial instruments that are:
- Flexible across sectors: able to support cross-cutting projects that merge environmental and technological innovation
- Scaled appropriately: offering microfinance for early experimentation and larger instruments for scale-up phases
- Blended strategically: combining grants, loans, equity, and guarantees to match different risk and maturity profiles
- Oriented toward long-term impact: rewarding solutions that demonstrate both environmental and technological value
Public funding must not only de-risk innovation but actively shape markets where twin transition solutions can thrive.
Lessons for Regional Innovation Systems
Regions are not passive actors in the twin transition. By designing smart, flexible financial instruments, regional authorities can foster ecosystems where green and digital innovators collaborate, co-develop, and grow.
At FI4INN, we support the development of financial tools that recognize this complexity—encouraging multi-sectoral approaches, aligning funding calls with twin transition objectives, and integrating ESG (Environmental, Social, Governance) criteria into financial decision-making processes. The twin transition demands more than ambition, it demands finance that is as integrated, agile, and forward-looking as the future it aims to build.