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Will digital product passports lead to cleaner, clearer supply chains?

Brussels is set to announce legislation next year introducing digital product passports. The measure, designed to boost sustainability and transparency, has significant implications for British exporters to the EU

Digital product passports

Last year, businesses and consumers in the EU generated 7 million tonnes of textile waste. Of this material, 31% was recovered and only 1% was recycled, according to the European Parliamentary Research Service.

A key factor thwarting the widespread appliance of circular-economy principles here is that comprehensive information is not being passed along the supply chain. That makes it hard for the owner of a given product to make responsible choices about repairing, reusing or recycling it. But the EU thinks it has a solution: the digital product passport (DPP). This will contain sustainability data on each item that can be accessed wherever it goes.

Hannah Bernard is a senior director at Avery Dennison Smartrac, a provider of product tracking and inventory tech. She explains that, under legislation set to be introduced by Brussels next year, every textile and electronic product sold in the EU will have to come with a QR code. When scanned, this will open a digital document containing details including what the item is made of, how to look after it and what to do with it at the end of its life.

Bernard adds that the legislation “won’t come into force until 2026-27. That gives businesses several years to prepare.”

It’s inconceivable that, in a decade’s time, we won’t have some sort of passport or value chain information available for most goods

But nearly all other products are likely to be covered by DPPs thereafter as part of the so-called European green deal, the European Commission’s plan to create the “first climate-neutral continent” by 2050.

Simon Geale is executive vice-president at Proxima, a consultancy that advises members of the FTSE 100 on procurement and logistics. He believes it’s “inconceivable that, in a decade’s time, we won’t have some sort of passport or value chain information available for most goods we buy, because things will be more joined up by then”. 

Although the UK no longer has to incorporate EU legislation into domestic law, British companies exporting goods to the bloc will have to comply with the relevant DPP laws, once enacted, if they’re to keep serving this market. 

A successful pilot for digital product passports

The DPP won’t be the first programme of its kind to be attempted. In January, the Global Battery Alliance (GBA) introduced the world’s first battery passport as a proof of concept. This was the result of a three-year collaboration involving 140-plus partners, including international NGOs, governments, academic bodies and businesses such as Audi, Tesla and BASF.

The battery passport is a cloud-hosted digital representation of a physical battery that provides data on the item’s sustainability. The scheme will, according to its creators, throw more light on the industry’s global supply chain. It’s a sign of things to come – the European Commission has already passed legislation on the use of DPPs for batteries. 

The challenges of digital product passports

The implementation of DPPs is unlikely to be straightforward in the first industries to be covered, given the typical length and complexity of their supply chains. Data on certain products may prove hard to obtain and calculation discrepancies will be possible, which does not aid the accurate assessment and comparison of items’ sustainability credentials. 

There’s also a significant risk that some parties might provide untrustworthy information. Unless the scheme is policed carefully, greenwashing could go unnoticed, thereby defeating one of the main objects of the exercise.

Nitish Jain, associate professor of management science and operations at London Business School, offers an example of the type of complexities at play in the electronic goods sector.

“How do you handle a product that may be returned at different stages of its life? For example, someone might exchange their iPhone very quickly because they want the latest model, while someone else might use theirs for its entire lifecycle,” he says. “Those two iPhones will require very different business models in the reverse loop. The big question is how information transparency will affect this part of the supply chain.”

Jain predicts that creating and maintaining DPPs will be costly, disproportionately so for smaller businesses. Complying with the legislation may require significant expenditure on systems that can collect, process and exchange data in real time. The extra outlay to achieve compliance might even deter some British SMEs serving the EU from staying in the market.

“How those costs will be compensated is a question because, at the end of the day, businesses make calls based on when things are profitable for them,” he says. 

On top of this come the costs of independent audits and certifications guaranteeing the authenticity of passport data.

Geale is similarly concerned about the compliance burden, noting that “there are quite a few challenges behind what seems like quite a sensible piece of legislation”. 

He reports that some companies “are already making products with digital passports, either because of the brand value this generates or because doing so ties in closely to what they’re preaching as core to their brands. But this practice will become table stakes rather than a competitive advantage once the regulatory change comes in and organisations have to start adopting it en masse. You’ll need to work out how to cut your costs to protect your margins.” 

Geale adds that DPPs will be easiest to implement in short supply chains whose constituents are already digitally competent. The big benefits will come where players can switch quickly to a circular business model that enables more significant sustainability wins.

How can DPPs make supply chains more sustainable?

If such gains are to be made, key ESG metrics must be incorporated into the whole product design and development process. The added transparency provided by DPPs should encourage firms to use more eco-friendly materials and energy-efficient processes. Durability, repairability and recyclability should also become more of a priority during the design phase.

The sustainability benefits could well work both ways too, inspiring positive changes among consumers, according to Bernard. 

“Cost and quality – that is, durability – are key factors influencing purchasers’ decisions,” she says. “By creating more durable products and educating consumers on product longevity, we can make improvements in sustainability.”

How will DPPs affect British exporters to the EU?

UK firms that export goods to the EU would be well advised to start preparing to publish sustainability data on each product, covering factors such as resource consumption, energy efficiency, robustness, repairability and recyclability. A proactive approach could prove advantageous here, while inaction is risky.

“If things are more joined up, that enables businesses to make faster decisions. That’s going to be the same for all firms, whether they’re in the UK, the EU or other parts of the world,” Geale predicts. “I’d say it’s a marketplace shift that everyone’s going to work towards.”

As with any passport queue, being at the front of that line would be an advantage.

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