By Darren Parkin
by Lars Rensing, CEO of Protokol
All businesses want to show consistent growth. But growth for the sake of it is not sustainable, and in recent decades, businesses racing to scale have sometimes overlooked the impact of their supply chain and business model.
The European Commission has taken action to re-centre sustainability in the supply chain, in the form of the ‘Circular Economy Action Plan’ (CEAP). With an aim to lead the world in more eco-conscious systems of industry, the CEAP has already led to great progress since its introduction in 2020, bolstered by additional proposals like the Ecodesign for Sustainable Products Regulation (ESPR). At the heart of this regulation, and EC plans to create a more circular economy, is the Digital Product Passport (DPP).
A DPP is a digital record of a product’s history, from the raw materials used in its creation, through its various ownerships, to servicing and repair. At each stage of the supply chain and lifecycle of a product, new information is added to its DPP, which can be accessed by relevant authorities, owners, and third parties. They allow customers and vendors to verify sustainability claims, ethical sourcing, and ensure the quality and authenticity of products.
First approval of DPP regulation from the European Commission is expected in the next year or so, with DPPs for industrial and EV batteries the first to be mandated as soon as 2027. Following that, industry-specific policy will roll out to other sectors as soon as 2030.
As businesses plan their long-term strategy and ESG goals, DPP preparation must be included to ensure regulatory compliance and smooth rollout. So, where can businesses begin exploring DPPs?
Regulatory considerations and impact
Currently, the CEAP names the battery industry as the first to adopt mandatory DPPs. Cosmetics, automotive, textile, and furniture industries are all in the EC’s long term plans, but the exact timeline for rollout and industry-specific regulation for each of these sectors are not yet clearly defined. But compliance with regulation is only one reason to explore DPPs at this early stage, as they provide a number of merits both operationally and reputationally. They can reassure customers of sustainability claims, ensure better oversight of supply chains, provide a verifiable audit trail for regulators and more.
The regulation is also the same for companies of all sizes. Big businesses will face different challenges to small to mid-sized enterprises by virtue of the scale of their operations – but it’s SMEs especially that may fear the financial and human investment involved with implementing Digital Product Passports. But despite these challenges, once the regulation is enforced SMEs could reap the largest rewards if they use their size to move more quickly than larger competitors. By proactively preparing for these changes, smaller businesses can potentially outperform their larger, slower-moving counterparts.
Another layer of complexity is added due to the Ecodesign for Sustainable Products Regulation (ESPR). The ESPR sets the standards and criteria for the environmental performance of products sold within the EU, and as such, is closely related to the standards for information that will be captured in a DPP.
The ESPR sets out a range of requirements including product durability, reusability, upgradability and reparability, carbon and environmental footprints, and recycled content, to name a few – all of which could be easily verified within a Digital Product Passport.
For example, a DPP can record the ‘reparability score’ of a product. If this changes over time as parts become obsolete, then a customer can make an informed decision about whether to purchase the product, or check for information on recyclable and upgradable components to help dispose of an old product responsibly or renew it for further use. The next buyer in the product’s life cycle would be able to see which updates and repairs had been made, and check that they were carried out by a responsible, ethical company. In this way, the DPP can prove that the product is ESPR compliant, down to each product made, giving peace of mind to businesses and buyers alike.
The CEAP and ESPR are just two of several complementary pieces of regulation in the works, each of which could shape the final implementation of mandatory DPPs.
Seeking expertise in Digital Product Passports development, especially with regard to technical and regulatory knowledge, will help businesses to build flexible and scalable solutions now. Then, once final regulation is enacted with specific details of how DPPs should be implemented, businesses can avoid the disruptive teething process.
Some of the largest unknowns in current draft regulation involve considerations around data security, transparency, and trust. Fortunately, tech already exists that solves many of these implementation challenges – blockchain technology.
Blockchain and cloud-based DPPs
Businesses all along the supply chain will bear the onus for maintaining DPPs – suppliers, manufacturers, sellers, and third parties involved along the way. With so many touchpoints, it quickly becomes complex to assign responsibility for different elements of a DPP. How will the integrity of the data be maintained? How will customers be able to accurately trace when the DPP was updated, and who by? This uncertainty can be overcome, even before the EU gives a definitive answer.
One way a business can maintain a DPP is to store the bulk of the information on cloud, passing the record to the next company in the supply chain to update, building a holistic picture over time.
However, in this model, there is no guarantee that the data in the DPP has not been retroactively amended by a business with its own agenda. And if there is no permanent, immutable record of when a DPP was updated or changed, its legitimacy is reduced, countering any perceived benefit to ensuring ethical, sustainable practices were embedded in each step of the product lifecycle.
Blockchain Digital Product Passports overcome this challenge, as a hash of the data can be stored on the blockchain.
Thanks to the immutable nature of blockchain, once the hash is recorded, future buyers and companies further along in the supply chain can verify that the information they’re seeing in the DPP has not been edited retroactively, helping reassure them that their suppliers have been compliant with EC regulation from the start. This ensures that the Digital Product Passport is purely additive, with new information contributed at each stage rather than altered.
Use cases of blockchain like this help underline its value to businesses in the easy, secure, and transparent transfer of data.
Preparing for the future of DPPs
Mandatory implementation of DPPs looms closer, and with so much regulation to consider, the road might seem daunting. There are certainly still questions that need answering, but the best time to start preparing is now – even with some decisions yet to be made, failing to prepare in advance and waiting until all answers are all clear could leave a business trailing behind. Regardless of the uncertainties, one thing is clear: DPPs represent the future of product accountability and transparency.
Blockchain’s unique properties of immutability, security, and decentralization, make it a promising platform for this digital evolution. As businesses, it’s our responsibility to stay informed, proactive, and flexible to adapt to these changes. That way, we can embrace the full potential of DPPs with more certainty.
