The EC has mandated DPPs – what happens next for your business?

The aim of all businesses is to grow, but more often than not, continuous growth requires new ways of working to ensure that the business remains sustainable. Businesses can often make the mistake of overlooking the social and environmental impact of their supply chains and business models in their pursuit of growth.

The European Commission (EC) has begun to focus more on sustainability in the supply chain, in the form of the ‘Circular Economy Action Plan’ (CEAP).The CEAP aims to lead the more eco-conscious systems of industry, and has already made great progress since its introduction in 2020, supported by additional proposals like the Ecodesign for Sustainable Products Regulation (ESPR). One tool that the EC has mandated to support these plans and create a more circular economy, is the Digital Product Passport (DPP).

A DPP is a digital record of a product’s history. It can contain information on various aspects of an items’ 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. They allow customers and vendors to verify sustainability claims, ethical sourcing, and ensure the quality and authenticity of products. DPPs can also facilitate resale by enabling the authentication of products or outline recycling instructions or end of life disposal of a product, closing the loop and helping  create a more circular economy.

The EC is expected to approve the draft DPP regulation in the next year, with DPPs for the industrial and EV batteries sector the first to be mandated as soon as 2027. After that, industry-specific policy will apply to other sectors as soon as 2030.

With businesses planning their long-term strategy and ESG goals, they must pay increasing attention to participating in the circular economy, to demonstrate their sustainability claims and avoid greenwashing. DPP planning should be included in an organisation’s ESG strategy, to ensure regulatory compliance and a smooth rollout. So, what should businesses know about DPPs?

Regulatory Considerations and Impact

As of now, the battery industry will be the first to adopt mandatory DPPs according to the CEAP. Cosmetics, automotive, textile and furniture industries are all in the EC’s long-term plans, but the exact timeline for rollout and regulation is not yet defined. However, most drafts show the most imminent changes taking place in the next 3-6 years, giving businesses a short time frame to become compliant.

However, compliance with regulation is only one reason to explore DPPs at this stage. There are many rewards of proactively implementing DPPs, including operational and reputational benefits. They can reassure customers of sustainability claims, ensure better oversight of supply chains and provide a verifiable audit trail for regulators, amongst others.

This regulation is the same size for all companies. Larger businesses will face different challenges to smaller or mid-sized enterprises (SMEs) by virtue of the scale of their operations. However, it is SMEs in particular that may face financial and human investment challenges involved with implementing DPPs. Despite these challenges, SMEs could reap the largest rewards if they use their size to move more quickly than larger businesses once the regulation is enforced. Through proactively preparing for these changes, SMEs can potentially outperform their larger and slower counterparts.

The ESPR adds another layer of complexity. The ESPR 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 included 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. All these requirements are easily verified within a DPP.

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 upgradeable parts to help responsibly dispose of an old product or renew it for future use. The following buyer in the product’s lifecycle can see which updates and repairs have been made, and check that they were executed by a responsible, ethical company. In this way, 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 complementary pieces of regulation, both of which could influence the final implementation of mandatory DPPs. Seeking expertise in DPPs development, particularly in terms of technical and regulatory knowledge, will help businesses build flexible and scalable solutions. Then, once final regulation is enacted with details of how DPPs should be implemented, businesses can avoid the disruptive teething process.

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 complicated to assign responsibility for different elements of a DPP. Some of the largest uncertain factors in current draft regulation involve considerations around data security, transparency, and trust. Fortunately, blockchain technology exists, solving many of these implementation challenges.

A business can maintain a DPP in many ways. One way is by storing a majority of a DPP’s 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 way, there is no guarantee that the data in the DPP has not been retroactively amended by a business with its own agenda. If there is no permanent, immutable record of when a DPP was updated or changed, its legitimacy is reduced, hindering any perceived benefit to ensuring ethical, sustainable practices were embedded in each step of the product lifecycle.

Blockchain DDPs 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 businesses further along in the supply chain can verify that the information they are seeing 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 contributed at each stage, rather than altered. Use cases of blockchain like this help emphasise its value to businesses in the simple, secure and transparent transfer of data.

Preparing for the Future of DPPs

The implementation of DPPs is soon becoming mandatory, and with so much regulation to take into account, this may seem daunting. A good DPP solutions provider should be up-to-speed on the latest regulation, even in draft stage, and how the DPPs they build will stay compliant. Now is the best time to start preparing – even with some decisions yet to be made by the EC. If preparation does not happen in advance, a business could end up trailing behind. Regardless of these uncertainties, one thing is clear: DPPs represent the future of product accountability and transparency.

Article by Lars Rensing, CEO of Protokol