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As consumers and regulators demand increasing transparency and circularity in the production and distribution of goods, digital product passports will be a key tool in supply chain management and optimization.
What are digital product passports?
Products entering the European Union are required to demonstrate compliance with certain safety, health and environmental standards. Currently, positive demonstration of a product’s compliance with these requirements is largely achieved by labelling the product, shipping hard copy documents alongside the goods, or by keeping paperwork such as declarations of conformity on file or available on a manufacturer’s website. This can make it difficult to trace individual products from particular lots or batches and the information often lacks the immediacy and granularity that regulators and consumers increasingly expect. When certain products need to be traced or recalled due to defects or dangers, this lack of specificity can result in manufacturers recalling too much or not enough, with obvious consequences for their risk exposure and costs.
However, more sophisticated coding tools are coming into use, which makes the idea of a digital product passport (DPP) possible. The European Union describes DPPs as “a digital identity card for products, components, and materials, which will store relevant information to support products’ sustainability, promote their circularity and strengthen legal compliance”. In practice, a DPP will take the form of a data carrier like a QR code being physically applied to a product or its packaging that, when scanned, resolves to a web address where the manufacturer can store and update compliance and other information about the product. The EU is also concerned to ensure that “the digital product passport is flexible, agile and market-driven and evolves in line with business models, markets and innovation” and to this end “should be based on a decentralised data system and be set up and managed by economic operators”, but accessed centrally via a digital product passport registry.
Why are DPPs needed?
A suite of new regulations have been enacted or are being developed to help implement the EU’s Circular Economy Action Plan, which all require much higher levels of due diligence by participants in the market.
These include, for example:
- the Ecodesign for Sustainable Products Regulation (the ESPR) (which mandates the use of DPPs for in-scope products);
- the Corporate Sustainability Due Diligence Directive (which you can read about in detail in our article); and
- the EU Green Claims Directive.
There are also product-specific initiatives for textiles, construction products, batteries, detergents and toys, which mandate the use of DPPs.
For example, the proposed EU Battery Regulation stipulates that:
“In order to enhance transparency along supply and value chains for all stakeholders, it is necessary to provide for an electronic system that maximises the exchange of information, enabling tracking and tracing of batteries, provides information about the carbon intensity of their manufacturing processes as well as the origin of the materials used, their composition, including raw materials and hazardous chemicals, repair, repurposing and dismantling operations and possibilities, and the treatment, recycling and recovery processes to which the battery could be subject to at the end of their life.”
- Supply chain due diligence requirements in the EU are increasing in order to achieve sustainability and circularity goals
- Digital product passports will be a key innovation helping market participants meet these evolving requirements
- These changes are likely to have an impact beyond in-scope companies and products