Businesses, customers, and supranational organisations are increasingly focused on social and environmental sustainability to help combat climate change. Recently, the focus has shifted towards increasing supply chain sustainability – and for good reason.
It’s estimated that on average, an organisation’s supply chain emissions are 11.4 times higher than that of their direct operations. These indirect emissions are produced by suppliers, logistics partners, and other supply chain actors that operate outside of the organisation’s direct influence.
Additionally, extracting the rare materials used to produce popular consumer items such as mobile phones has an ongoing negative environmental and social impact, as demonstrated in the case of conflict minerals in the Democratic Republic of Congo. Addressing these issues is paramount for achieving global supply chain sustainability.
A study from IBM highlights the importance of high-quality, transparent data sharing among supply chain actors as a major factor that impedes building resilient, sustainable supply chains. Without democratising access to verifiable supply chain sustainability data, it’s difficult to identify critical improvement points or to track progress towards sustainability targets.
Digital Product Passports (DPPs) offer a novel solution for increasing supply chain sustainability, providing a wealth of verifiable data to give a holistic and accurate view of an organisation’s value chain at a macro and micro (individual product or batch) level.
What are Digital Product Passports?
DPPs are a revolutionary new tool for sharing critical information about physical products with stakeholders throughout the supply chain. This data can span the entire product lifecycle – from manufacture to recycling and disposal – giving a holistic, comprehensive, and valuable overview.
The driving force behind the adoption of DPPs is the Ecodesign for Sustainable Products Regulation (ESPR), which came into force on 18th July 2024. The regulation sets ecodesign requirements for products manufactured or sold within the EU, aiming to create a sustainability standard for physical products.
The ESPR directly mandates that every product it regulates must come with a DPP, accessible by QR code or a similar data carrier. This will help provide stakeholders across the value chain access to verifiable information about product traceability, carbon footprint, and various other data related to supply chain sustainability.
DPPs in Achieving Supply Chain Sustainability
There are several ways in which the data that Digital Product Passports provide can drive supply chain sustainability, from providing access to updatable product lifecycle data in real time, to promoting collaboration between crucial supply chain actors.
Social & Environmental Sustainability in the Manufacturing Process
Manufacturers are core supply chain stakeholders, taking raw materials and turning them into finished products to be sold downstream.
The manufacturing and production sector releases around 20% of global carbon emissions and accounts for 54% of the world’s energy usage. It’s also one of the key points in the supply chain for potential social exploitation, with only 2% of fashion manufacturing workers earning enough to cover necessities.
Many places in the developing world don’t have the effective oversight or regulation necessary to charge unscrupulous manufacturers with making false claims about the quality of their working conditions, or the environmental cleanliness of their operations.
DPPs help to solve this problem by democratising access to a spectrum of verifiable manufacturing data, from raw material usage efficiency data to manufacturing facility identifiers.
When built using blockchain technology, the information contained within the DPP becomes immutable and tamper-proof. This means that retailers, suppliers, and wholesalers – all downstream stakeholders – can trust the information is accurate as the data can’t be manipulated after it’s been created.
This also helps organisations comply with the EU Green Claims Directive, which imposes significant responsibilities on businesses to substantiate their environmental claims. DPPs provide provable supply chain sustainability about the manufacturing process that customers can view, helping them to make reliably based on social & environmental sustainability factors.
Carbon Footprint Data & Compliance
Over the years, several attempts have been made to create avenues for businesses to reduce their carbon footprints, from carbon offsetting using carbon credits to switching to renewable energy sources.
The number of companies globally that have set net-zero targets rose by over 40% between June 2022 and October 2023. Whilst this is an encouraging trend, there’s a caveat – only 37% of these net-zero targets fully cover Scope 3 emissions.
Scope 3 emissions are those generated by upstream and downstream actors in an organisation’s supply chain, rather than those produced by the company’s direct activities (Scope 1 & 2). Amongst other factors, mapping and reducing Scope 3 emissions is key to achieving supply chain sustainability, as it’s estimated that Scope 3 emissions account for 75% of an organisation’s overall carbon footprint on average.
From greenhouse gases produced during the product’s manufacture to those generated during shipping and logistics, DPPs can contain environmental impact information on an individual product level using several data points from throughout the supply chain.
This data can be collated and extrapolated, giving a holistic understanding of the business’s full carbon portfolio, and an accurate, reliable measurement of its Scope 3 emissions. These key insights will enable businesses to identify areas where supply chain sustainability can be improved.
Additionally, it will help organisations governed by the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) to comply with these directives, which require accurate, verifiable data regarding organisations’ operational sustainability.
Real-Time, Verifiable Audit Trails
For regulators to operate effectively and give fair, measured assessments of organisations’ sustainability, they need transparent access to verifiable data from companies. This comprehensive sustainability data can be difficult for companies to provide presently, as this data often comes from disparate sources that vary in quality and completeness.
The ESPR’s DPP mandate makes it mandatory to furnish DPPs with up-to-date, accurate data, which means organisations will have to evaluate the quality of data sources from across their supply chain.
Implementing a robust DPP solution can help businesses meet these requirements as the implementation process will necessitate a full review of current internal data management practices and mapping the data sources across the organisation’s supply chain.
They can be integrated with existing Product Lifecycle Analysis (LCA) systems, which have the potential to unify disparate product data sources throughout an organisation’s network and bridge any data gaps that may present themselves during the data mapping phase of implementation.
DPPs built with blockchain technology will give organisations a comprehensive source of information that is trustworthy and can be updated in real time.
As the DPP’s data is secured on the blockchain, it creates a verifiable audit trail accessible by third-party regulators and allowing organisations to comply with evermore stringent supply chain sustainability legislation.
Conclusion
With the ESPR coming into force on 18th July 2024, increased scrutiny has been levelled at product manufacture, carbon emissions, and various socio-economic and environmental factors that impact supply chain sustainability.
Whether your organisation has a simple or highly complex supply chain, making your supply chain more sustainable will help increase business resilience, contribute to building a sustainable circular economy, and help you remain compliant with ever-evolving regulations.
Digital Product Passports hold the key to building sustainable, circular supply chains, providing a powerful platform for storing supply chain sustainability data, from individual products’ carbon footprint information to the origins of their raw materials and beyond.