Becoming a circular economy entails a deep transformation of industry, consumer behavior and policy. Traditional innovation funding focuses on technology, punctual projects and (single) companies, which alone fail to bring the required systemic change. Hence, the Flemish government launches the subsidy programme Living Labs Circular Economy for projects tackling complex challenges, with a high ambition level, in co-creation with very diverse stakeholders and employing system innovation methods.
Two thirds of Flemish territorial greenhouse gas emissions are material-related. Flanders’ material and carbon footprint are too high to be sustainable . Renewable energy production requires scarce and finite materials. Thus a circular economy is a critical condition for long term sustainability. Circularity is also a short term solution: global instability and related supply chain issues make a higher resource self-sufficiency essential for regions.
Becoming a circular economy (CE) entails a transformation across society: industry (manufacturing, business models, …), consumer behavior and policy. The resulting changes are organisational, technological, economic and socio-cultural. Moreover, everything is interwoven: it is a systemic transition without a simple solution; it requires a systemic approach. However, traditional innovation funding focuses on technology, punctual projects and (single) companies, which alone do not suffice. The pioneers in the active Flemish CE ecosystem expressed the need for systemic innovation support, triggering our idea.
We at VLAIO, the Flemish Innovation and Entrepreneurship Agency, developed a funding instrument for system innovation: the open call ‘Living Labs Circular Economy’, which funds ‘living lab’ projects in manufacturing and construction. Our main goal is to achieve breakthroughs in the circular transition and reduce our material and carbon footprints.
Unique features of the instrument (hardcoded in the selection criteria):
- Traditional grants often minimise risk, rather than managing it, which discounts ambitious system change projects dealing with uncertainty and wicked problems. We propose another risk management strategy, aiming to maximise exposure to positive upsides:
- Shift from predefined strict work plans to hands-on follow-up during project execution. We invest in continuously monitoring the projects and shared learning in a community of practice
- Projects use Theory of Change (ToC) to define a (societal) change as goal; the ambition must be high: impact at the level of a sector or value chain, focussing on root causes instead of symptoms. They map critical conditions (to enable change) and actions to fulfil those conditions. The goal thus justifies the means, which differs radically from traditional approaches: they often prioritize developing means (eg. technology). We allow a wider array of activities, if justified.
- Projects use Reflexive Monitoring to progressively learn and calibrate their actions, rather than stick to a predefined plan based on incomplete information. Projects must continuously share knowledge (practical, technological etc.) in an open source philosophy and co-create with their stakeholders (in a ‘learning out loud’ dynamic)
- A portfolio of parallel projects allows for complementarity, synergies, formation of networks and it spreads the risk (some underdeliver, some overdeliver)
- We allow for more diverse partnerships: if justified by the goal, we require all stakeholders to participate.
The submission process has three steps: (i) projects pitch to our team and get feedback; (ii) optional collective or individual coaching sessions, eg. on system innovation tools; (iii) submit final proposal.
The call was overwhelmingly popular. We had 700 participants at info sessions and a large inflow of projects, in a period of declining interest in traditional instruments. A project runs for up to 3 years and can request €300k to €1 M at 80% funding rate. Design and roll-out of the call was a co-creation between several VLAIO teams and a consultant for the coaching. Our main beneficiaries are circular pioneers from the ‘quintuple helix’: business, government, researchers, citizens, financiers. Feedback confirmed that our call was “the right call at the right time”.
An example project is called ‘Hybrid Living’, which aims to make housing more affordable and sustainable through two strategies: cooperative housing (rare in Flanders) and modular, change oriented architecture. Both enable major emission and material reductions, while adhering to a just transition. Their actions include the development of legal and financing frameworks, supporting key policy stakeholders and raising citizen awareness.
Our instrument can be a blueprint for funding any complex transition. It allows both funders and projects to manage the risk and uncertainty involved. Similar initiatives are the Deep Demonstrations by Climate-KIC  and the work of UNDP on systemic financing . The latter is very interested in our work and we are sharing learnings. Rathenau Institute inspired us with a publication on Living Labs as a form of third generation innovation policy .
Our team will follow up the granted projects closely in the next 3 years. Meanwhile we work to 1) go beyond a one-off subsidy call; 2) share insights and map the potential to adjust our other (funding) instruments.
Sources: see ‘Anything else’
What Makes Your Project Innovative?
- Traditional grants often minimise risk, rather than managing it, which discounts system change projects. We propose another risk management strategy:
- A shift from predefined strict work plans to hands-on follow-up during execution. We monitor projects and facilitate learning through a community of practice.
- Higher project ambition, at the level of a sector or value chain. Projects use Theory of Change to define a desired change. This goal justifies the means, while single point funding often prioritizes means.
- Projects use Reflexive Monitoring to iterate, rather than execute a predefined plan. They must continuously share knowledge and co-create with their stakeholders.
- A portfolio of parallel projects allows for complementarity, synergies, formation of networks and it spreads the risk.
- We allow more diverse partnerships. In line with ToC, each stakeholder relevant for reaching the goal is eligible.
All the above features are hardcoded in our selection criteria.
What is the current status of your innovation?
We finished the implementation of our subsidy call, from securing initial buy-in internally all the way to a final project selection. After a two-step application process, with coaching in-between steps, we held a jury to judge the proposals, resulting in a final ranking. We proposed the 22 best Living Labs to be funded. The Flemish government is about to make this decision. We foresee the projects to start in November 2022. We have evaluated the process so far.
We will host a kick-off event for the selected projects in Q1 2023, launching our community of practice. We will facilitate this network for the full duration of the projects: 3 years. In parallel, we will measure the impact of the projects, aided by a specialized consultant.
In 2023 we have budget to allocate and we are considering a similar call, depending on our evaluation. We will use the call as a source of insights to further transform VLAIO as a funding body towards more circularity and system innovation.
Collaborations & Partnerships
These actors were involved:
- VLAIO teams: Missions & Transitions (lead, 1.5 FTE), Network (operational support, 0.5 FTE), Team Bedrijfstrajecten (coaching projects, 0.5 FTE)
- Work agenda’s circular construction and manufacturing (multi-stakeholder agenda that drafted a circular vision): gave input from target audience
- Möbius: consultant, system innovation coach
- Input in design of call: Circular Flanders (hub for CE), VLAIO colleagues
- Jury: OVAM, Circular Flanders, industry experts
Users, Stakeholders & Beneficiaries
Main users: Flanders has a large, dynamic pool of circular projects and organizations working on the circular transition, spread across the quintuple helix: business, research institutions, government, citizens and financiers. They testified our call is the right tool at the right time for accelerating the transition: they can go beyond single point interventions, involve the right stakeholders and take the right actions to catalyse systemic breakthroughs.
Results, Outcomes & Impacts
Our call was overwhelmingly popular: 107 pitches and 39 final proposals, while traditional calls suffered declining inflow. Qualitative interviews with candidates confirm that the innovative elements of the call are a good match with their needs. Our coaching programme improved their knowledge on system innovation and facilitated new alliances, strengthening the ecosystem. The coaching sessions received a 9.2/10 rating (n = 17)
22 projects are to receive €18 million in 2022, with 174 unique organisations as project partners. Hundreds more are suppliers or partake in advisory boards or focus groups. Tens of thousands will be directly impacted through project outcomes (eg. industry standards). The ripple effect in small and tightly connected Flanders will be substantial: more businesses will go circular. We will measure the impact on CO2, material use and trends in the respective sectors.
In VLAIO we observed closer collaboration between teams and more interest in system innovation.
Challenges and Failures
Ch: challenge; F: failure; R: response
- Ch: to communicate the ‘what’ and ‘why’ of system innovation to candidates, policy makers, the public and VLAIO itself. R: extra efforts in storytelling; we take time for getting people on board
- Ch: system innovation requires flexible project plans and diverse partnerships. This is hard to do in current rigid administrative and legal frameworks. R: we found creative solutions and keep looking for what’s possible
- Ch: the link between activities and impact is often indirect. Solid quantified impact data (CO2, material use) will be critical for replication and communication. F: providing quantitative impact data was too optional in our submission form. R: we will hire a consultant to develop an impact measurement method and coach projects with it, and adjust our form.
- Ch: the timing was tight, both for candidates and for us, because of deadlines attached to our budget. R: plan more time for project consortia to form and write proposals.
Conditions for Success
- Buy-in from the people ‘guarding’ the budget: they need to allow for a different way of managing risk
- A pool of stakeholders and potential candidates with a basic understanding of the systemic elements of the (circular) transition. This transition must be advanced enough to benefit fully from systemic interventions
- An operational team with diverse profiles, having a basic understanding of system innovation. They must be solution seekers and have decision making power in order to overcome obstacles. A common understanding of (and belief in) system innovation and the transition at hand is also key, best ensured at the start of the project.
- Legal and administrative frameworks that allow for a workable degree of flexibility in project planning and type of partners
- An efficient administrative follow up of a potentially large inflow of proposals (eg. IT services)
- Budget to support projects of up to €1 M (a large enough project budget allows iteration) + consultancy as needed.
We build on the work on system innovation of Rathenau Institute and VITO. There have been local systemic projects granted in different calls (eg. Interreg), with a clear positive impact, however until now there was no dedicated call.
We recently learned that Climate-KIC is transforming their organization to fund system innovation, eg. through the Deep Demonstrations programme. UNDP was inspired by them and is researching how to make a similar shift, with their own Deep Demonstrations. We are in good contact with the latter so they can learn from our case to build theirs.
We think the future of innovation funding is system innovation. Society faces many complex challenges: energy, fake news, food, biodiversity and so on demand solutions beyond punctual project interventions. Our call and system innovation in general are tools fit to fund projects that rise to these challenges.
Small tweaks to existing funding policy, allowing more systemic projects, can also be impactful.
Other funding bodies probably think that system innovation sounds like a fuzzy concept. They wouldn’t be entirely wrong. However, the challenges society faces are big and require complex, sometimes fuzzy, solutions. One must engage with the fuzziness and put in the hard work of creating concrete actions out of it, fully knowing it won’t be perfect. System innovation offers a toolkit to do this.
By allowing more diverse partnerships, managing risk differently, placing the desired change at the centre and designing projects for progressive insight, we can fund high potential projects. What helped a lot was listening to pioneers and using existing resources in the organization.
A two-step submission process (first a pitch, 2 months later a final proposal) allowed space for coaching projects. This was elementary to get a high project quality and to make our expectations crystal clear. The coaching had a positive impact on the CE ecosystem regardless of funding outcomes.
We’d like to thank all the people who helped us along the way.
Our process so far was largely online, because of the pandemic.
 “10 new messages about circular economy and climate”, https://ovam.vlaanderen.be/circulaire-economie-strategieen-verminderen-onze-broeikasgasuitstoot
 The 1st generation focuses on technological developments in companies. The 2nd generation focuses on public-private partnerships. 3rd generation innovation funding focuses on tackling tough societal problems, creating real life experimentation setups and co-creation with a wide range of stakeholders such as researchers, citizens, entrepreneurs and policy makers. – freely translated from
- Implementation - making the innovation happen
- Evaluation - understanding whether the innovative initiative has delivered what was needed
20 January 2023