City and region challenge funds

Governments and public bodies around the world are grappling with how to support innovation – with twin objectives of driving economic growth and solving societal problems. One approach that has been gaining significant traction is the creation of challenge funds. But what are these, how do they work and how should they be deployed?

The rise of place-based challenge funds

In 2020, the Mayor of London and Challenge Works launched the Mayor’s Resilience Fund, a £1 million challenge fund to incentivize innovators to address socially impactful issues facing London. 

In 2021, the Cardiff Capital Region Challenge Fund was launched in Wales, aiming to rebuild local wealth post-COVID by making funding available for public sector actors to incentivise innovative solutions to problems faced by the public sector. 

More recently, the Scottish Government announced a £5 million challenge fund aimed at developing carbon dioxide utilisation technology in order to boost Scotland’s carbon capture sector and achieve net zero emission targets

These are only a few of the many examples of the challenge-led innovation funding programmes – ‘challenge funds’ – that have been launched over the past few years, a space that is gaining increased attention. 

Challenge funds are overarching, strategic funds focused on fostering innovation around a specific mission, theme or policy priority. 

They are effective ways to harness innovation potential around a particular objective; invite businesses and other enabling partners to develop, test and scale solutions; and foster systemic change by engaging a broad spectrum of stakeholders – including citizens, businesses, regulators, and government – in problem solving and growing the local innovation ecosystem. 

This recent attention given to challenge funds has coincided with a movement toward more place-based innovation funding – across the UK, we have seen greater devolution of power and funding to local government in recent years, and indications from Whitehall point to these trends continuing. As cities and regions take more control over managing funding streams and developing place-based approaches to innovation, there is a growing interest among cities and regions to create and launch city-centred innovation challenge funds. 

In this context, Challenge Works and Cardiff University’s Centre for Innovation Policy Research were commissioned by the Northern Ireland Department for the Economy to provide guidance on the design and delivery of challenge funds  as part of Northern Ireland’s City and Growth Deals. 

To achieve this, we reviewed past and current challenge funds launched across the UK, spoke to experts in the field, and drew from our own experience with our own challenge funds. We interrogated what challenge funds are and what they can do, and thought carefully about how to actually put them into practice, from design to delivery. 

In our upcoming blog post series, we will share some of what we found out, and delve deeper into challenge funds – what they are, how to design and deliver them, and how to manage them to maximise impact.

Acknowledgments

This work was conducted in collaboration with our colleagues from Cardiff University’s Centre for Innovation Policy Research, Shane Doheny and Rick Delbridge, and Haru Majengwa at Challenge Works. The insights reflected in this blog post series were made possible by the many discussions we’ve had with experts in the field. We would like to thank Julie McLaren, Gemma Moore, Jen Rae, Prof. Richard Jones, and Claudia Pompa. We appreciate the many valuable insights gathered from colleagues at the Department for the Economy, Invest NI and other organisations we spoke to. All opinions expressed in this series are strictly those of the authors.