2022 closed out with some of the highest recorded temperatures since records began in 1880. This alarming warming trend has instigated a sharp shift in focus in recent years towards tackling climate change.
Several international and supranational regulatory bodies worldwide are working to enact legislation to ensure that businesses set an example on climate change response, transforming the current economic model into a sustainable circular economy.
Businesses failing to respond to these changes risk large fines from regulators, alienating their increasingly eco-conscious consumer base, and ultimately losing competitive advantage.
What is a Sustainable Circular Economy?
The circular economy is a new way of doing business – an economic model away from the wasteful industrial era paradigm of ‘produce, consume, dispose’.
To illustrate the scope of the impact this has on the environment, around 100 individual companies have been responsible for producing 71% of the greenhouse gas emissions causing global warming since 1998.
Regenerative by design, the circular economic approach seeks to reduce the harm that corporations have on the environment by enabling sustainable production and reducing the overall extraction of raw materials, whilst recycling as much as possible.
Within circular economy and sustainability initiatives, product lifecycles are extended, with individual products being reused, refurbished, recycled, remanufactured, or a combination of these. Raw materials are kept in longer usage cycles to produce less (or no) waste.
The global push towards a more sustainable, circular economy is in full swing. For example, the European Union is busy implementing legislation under its Circular Economy Action Plan (CEAP) to tackle climate change by challenging polluting industry practices in a clear and actionable fashion.
To support these aims practically, the EU is also mandating technologies such as Digital Product Passports which will revolutionise the business landscape for physical products.
What is a Digital Product Passport?
Digital Product Passports are a mechanism for sharing product data throughout a product’s lifecycle.
They can be updated in real-time so that each stakeholder within the ecosystem – which can include customers, suppliers, and regulators – has an easily accessible, verifiable and up-to-date view of a product’s lifecycle.
This can include information on raw materials, the manufacturing processes, the journey the product has taken from manufacturer to end user, and information relating to sustainability and the end-of-life instructions for a product.
DPPs can enable environmentally conscious decision-making throughout the entire supply chain. They can capture several types of data, including:
- Raw Material composition
- Sourcing & sustainability data
- Information relating to manufacture
- Supply Chain journey
- Carbon Footprint
- Recyclability
- Product Lifecycle Data
Digital Product Passports can store data relating to each product’s environmental impact at a granular level. They can enable organisations to point to verifiable records of a product’s environmental impact that align with their ESG goals — satisfying stringent regulatory requirements that will be imposed to achieve a circular economy and enhanced sustainability objectives.
The EU is looking to make DPPs mandatory across specified industries, such as textiles, by 2030 via the Ecodesign for Sustainable Products Regulation (ESPR) – with the intention to mandate further industries in the near future. This is the first full-scale regulatory initiative of its kind.
To place products on the EU market, organisations must implement Digital Product Passports for the products they sell (some industries are exempt from the regulation, such as feed, food and medicinal products).
However, at the time of writing, the technical and operational specifications EU Digital Product Passports need to follow have yet to be fully laid out – in particular, the data collection, storage and reporting requirements are among some of the details yet to be fully decided by the European Commission.
This powerful technology has the potential to be the backbone of a circular economy – especially when built using decentralised technologies such as the blockchain. Blockchain is a digital ledger technology which offers data security, immutability, and transparency, and provides a solid foundation on which to build a Digital Product Passport solution.
How do Digital Product Passports Aid Sustainability?
Digital Product Passports provide a practical platform those participating in circular economy initiatives by acting as an accessible information repository for a product’s lifecycle analysis.
DPPs can include information about warranty which can encourage repair rather than replacement, recycling and end-of-life instructions to limit unsustainable disposal, and transferable records of ownership that enable opportunities for resale on secondary markets – all of which facilitate the circular economy and enhance sustainability.
Manufacturing
Manufacturing organisations could use DPPs as a verifiable way to provide information around raw materials used in the manufacturing process and the sustainable sourcing and manufacture of products – not just to the manufacturer’s retail customers who carry the products, but to the end customers themselves – which is increasingly important, given that 46% of customers want clarity on product sourcing.
DPPs could contain information about product composition, manufacturing method, location, and identification of workers (for social governance). Organisations throughout the supply chain can point to these records to prove that manufacturing and material procurement processes are verifiably ethical and sustainable.
Once the product has been created and entered into the market, DPPs could enable manufacturers to gather usage data as end users engage with the product. Manufacturers can use this information to inform downstream stakeholders about any faulty batches and enact product recalls.
Product DPPs could be programmed to contain a verifiable warranty and maintenance record to encourage repair and reuse, rather than replacement. DPPs could even give end users the ability to interact with the manufacturer directly in the event of a fault and records can be easily updated within the DPP as products are repaired.
If the product is beyond repair and must be recycled or destroyed, the product’s DPP can also contain direct instructions for this alongside the necessary end-of-life information.
For intricate items with multiple components/materials that require differing recycling methods, all relevant composition information – potentially harmful additives and chemical substances for example – can be accessed by specialist recycling companies efficiently.
This ensures that products are safely broken down and recycled where possible, or disposed of, removing the knowledge barrier and aligning with circular aims.
Carbon Footprint & Reporting
Core to creating a sustainable circular economy is the reduction of greenhouse gas emissions. Organisational GHG emissions are covered by several ‘scopes’ – the main three of which are Scope 1, Scope 2, and Scope 3 emissions.
Scope 1 covers direct emissions released by company-owned buildings and machinery, whereas Scope 2 refers to indirect emissions from purchased or acquired energy. Scopes 1 & 2 are required to be reported by law in some form across the globe, from the Environmental Protection Agency (EPA) in the USA, to China’s National ETS.
Scope 3 relates to emissions throughout an organisation’s value chain. This includes the emissions of their product’s suppliers and manufacturers, extending from purchased goods and services to wastage and product distribution and so on.
While reporting on Scope 3 emissions is voluntary, it’s strongly recommended that they be disclosed since this type of emissions typically accounts for around 70% of organisational GHG emissions for most businesses.
Reporting these indirect emissions relies on gathering third-party data, drawn from several unowned sources both upstream and downstream in the value chain. Data quality can vary a lot due to supply chain complexity and a lack of standardisation, and the capacity for double-counting emissions is high. Overall, the process can be cumbersome and resource-intensive.
Digital Product Passports could help to solve these issues by providing a data repository for product lifecycle analysis to be done at a granular level, increasing visibility and providing a singular source of verifiable sustainability information on an individual product basis.
Extrapolating this data could give a full view of the supply chain’s environmental impact – maintaining accuracy and reducing the resources burden especially when generating Scope 3 emissions reports – whilst identifying potential inefficiencies and areas for improvement.
Informing & Empowering Consumers
Greenwashing has been a serious issue for many years. Not only does it enable unscrupulous businesses to mask their lack of care given to the environment, but it can also damage consumer confidence in organisations that are making genuine efforts towards making their operation eco-friendly, as well as undermining the all-round push towards a sustainable circular economy.
For end users or consumers, DPPs can provide transparency when evaluating the seller organisation’s claims of sustainable manufacture as easily as scanning a QR code or RFID tag.
Manufacturing and raw materials data can be contained within, which can be checked transparently by retailers (for accurate labelling) and by customers to give assurance that the product they’re purchasing is safe and contains what they expected.
Digital Product Passports can also carry tamper-proof ownership credentials and other related information which are transferable. For items that can be resold, this gives the new second-hand purchaser immutable proof of their ownership.
Additionally, DPPs provide authentication and verification of the products themselves, as well as access to any warranties which stand to enhance consumer protection even beyond the original sale. This is particularly relevant for high-value items such as luxury goods and clothing or for complex items like automobiles and electronics.
Conclusion
Clearly, stakeholders the world over are making strides towards building a sustainable circular economy.
From sweeping legislation in the EU to rising customer concerns around environmentally friendly business practices – organisations that wish to stay on the right side of history need to change accordingly. Practical applications of new technologies like Digital Product Passports are enabling this shift.
With DPPs, product lifecycles are extended and customers are empowered to recycle and reuse products as much as possible, being endowed with all of the relevant information to make this possible. End-of-life information becomes readily available to specialist recycling companies and the like, increasing the utility of products and their component materials like never before.
DPPs are also a mandatory requirement for businesses involved in the production, manufacture, and sale of certain items, such as textiles, within the EU by 2030 – with plenty of other industries to follow.
To remain compliant, organisations should start forming a firm understanding of the upcoming regulations and begin collecting data from suppliers at the earliest opportunity.
It would also be prudent to assign the appropriate resources to researching DPP products and solutions, whilst creating an internal plan for budgeting and strategy around the initiative.
Taking the time to evaluate your current digital infrastructure, existing processes and identifying any potential gaps in the availability of product data now could help make the implementation of DPPs a faster and less complex task in the long run. With the first regulations set to come into effect for some industries in the next few years, now is the time to act.