The EC is mandating DPPs – what happens next for your business?
A Digital Product Passport (DPP) is a digital record of a product’s supply chain history. It contains information on aspects of a product’s lifecycle, from the raw materials used in its creation, through its various ownerships, to servicing and repair.
New information is added to a product’s DPP at each stage of its supply chain and lifecycle, which can be accessed by relevant authorities, owners and third parties. DPPs permit customers and sellers to verify sustainable claims, ethical sourcing, and ensure the quality and authenticity of products via the product lifecycle information stored within the DPP. They also facilitate resale by enabling the authentication of products or outlining recycling instructions and end of life disposal of a product, closing the loop and helping transition to a more circular economy.
In 2020, the European Commission implemented the Circular Economy Action Plan (CEAP). The CEAP, expected for full approval next year, will mandate DPPs in a variety of sectors, with industrial and EV batteries industry first in 2027. After that, industry-specific policy will apply to other sectors as soon as 2030.
It is becoming increasingly important to participate in the circular economy, and businesses are taking this into account when planning their long-term strategy and ESG goals in order to demonstrate their sustainability claims and avoid greenwashing. To ensure regulatory compliance and a smooth rollout, DPP planning should be included in an organisation’s ESG strategy.
However, compliance with regulation is only one reason to explore DPPs at this stage. Implementing DPPs can be very beneficial in terms of operation and reputation; reassuring customers of sustainability claims, ensuring better oversight of supply chains and providing a verifiable audit trail for regulators, amongst others. With this in mind, businesses should act now to reap the most benefit – and take the competitive edge that comes with being a first mover.
The same regulation applies to all companies of different sizes. However, larger businesses will face different challenges to smaller or mid-sized businesses (SMEs) by virtue of the scale of their operations. On the other hand, SMEs may face more financial and human investment challenges involved with implementing DPPs. Nevertheless, SMEs could reap the largest rewards if they use their size to their advantage and move more efficiently than larger businesses once the regulation is enforced.
The ESPR adds another layer of complexity, as it sets up standards and criteria for the environmental performance of products sold within the EU, and is related to the standards for information that will be added in a DPP. The ESPR sets out a range of requirements including product durability, reusability, upgradeability and reparability, carbon and environmental footprints, and recycled content. All these requirements can be verified within a DPP.
For example, a DPP can record the “repairability score” of a product. If this changes over time as some 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 parts to help responsible dispose of an old product or renew it for future use. The next buyer in the product’s lifecycle can check which updates and repairs have been made, and see whether they were executed by a responsible, ethical business. In this manner, the DPP can also prove that the product is ESPR compliant, giving peace of mind to businesses and buyers alike.
The CEAP and ESPR are just two of several pieces of regulation, both of which can influence the final implementation of mandatory DPPs. Businesses can get started now building flexible and scalable solutions, by seeking expertise in Digital Product Passport development – particularly in terms of technical and regulatory knowledge. Then, once final regulation is enacted, and details of how DPPs should be implemented are available, they can make small adjustments that ensure compliance, rather than scrabbling to build a DPP solution quickly once all unknowns are addressed.
Blockchain and Cloud-Based DPPs
Businesses all along the supply chain could hold the responsibility for maintaining DPPs. Suppliers, manufacturers, sellers, and third parties are also involved along the way. With multiple touchpoints, it becomes difficult to divide responsibility for different aspects of a DPP. Some of the more uncertain factors in current draft regulation involve data security, transparency, and trust. Thankfully, blockchain technology exists, helping solve many of these implementation issues.
A business can maintain a DPP in many ways. One way is through storing a majority of a DPP’s information on cloud, passing the record to the next business along the supply chain to update, building a holistic picture over time. However, in this way, there is scope that the next businesses can retroactively amend the data with its own agenda. If there is no permanent, immutable record of when a DPP was updated or changed, it becomes less legitimate, hindering any perceived benefit to ensure that ethical, sustainable practices were embedded in each step of the product’s lifecycle.
Blockchain DPPs overcome this challenge due to the technology’s immutable nature. Once that hash of the data is recorded, future buyers and businesses along the supply chain can verify that the information in the DPP has not been retroactively amended, reassuring them that their suppliers have been compliant with EC regulation from the beginning. This ensures that the DPP is additive, with new information being contributed at each stage, rather than amended.
Preparing for the Future of DPPs
The implementation of DPPs is soon becoming compulsory, and with so much regulation to consider, this may seem intimidating. An efficient DPP solutions provider should have its finger on the pulse on the latest regulation, even in the drafting stage, and how the DPPs they build will stay compliant. The best time to start preparing is now, even with some decisions yet to be made by the EC. If such preparation does not occur in advance, a business could face more challenges. Regardless of these uncertainties, one thing is clear: DPPs represent the future of product accountability and transparency.
By Lars Rensing is CEO of Protokol
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