All sorts of innovation programs are always a trade-off. From a project perspective you usually lose more than you get, e.g. you can allocate only 4/5 of people time, which is measurable difference, and what you get instead is people who are a bit more motivated and happy. The gain of innovation programs is on company level: you get a chance to come up with some breakthrough, you raise motivation of people across the company and you draw better candidates to join the organization.
If you're PM and there's such program in place, just plan for it. If people are free to use 20% of their time on whatever they want, plan that they'll have one weekday off as they'll be busy with their side projects. I assume here the organization which introduces such plan is ready to take it with all its consequences.
If the program is introduced in the middle of the project you can ask the team to finish their work as planned and only then join innovation initiatives. It won't be the best idea if the project is going to last like two years from now though.
Anyway you can't forbid people to do something which is generally approved so if they are allowed to join some innovation initiatives react as you would in any other similar situations, like too low estimates, sickness, leaving etc. It doesn't really matter what is the reason of not having a specific person for some time in the project - reaction would be similar:
- you can try to fill the gap with other, possibly new, team members
- you can work on scope trying to move some work out
- you can renegotiate schedule if possible