Calling all tech entrepreneurs – Are you ready for the EU’s ESPR directive?

The issue of sustainability has been high on the agenda for nations globally for quite some time, and its importance is showing no signs of waning. Since the Paris agreement, efforts towards implementing new initiatives that galvanize sustainability have grown in numbers and force, but many have still not reached and impacted the day-to-day processes of smaller and medium sized businesses. 

Taking Europe as an example; 4.8 tonnes of waste was generated per EU inhabitant in 2020, and only 39.2 % of this was recycled. The EU is starting to put more responsibility on the companies putting products in the market by urging them to participate in creating a circular economy. The Ecodesign for Sustainable Products Regulation (ESPR) is a framework that sets “ecodesign requirements for specific product groups to significantly improve their circularity, energy performance and other environmental sustainability aspects.” As part of this first step it will impact a range of industries including- but not limited to – textiles, steel, electronics, which will be expected to attach Digital Product Passports (DPPs) to any products they place on the EU marketplace. 

Tech entrepreneurs need to take note that while the mandate will definitely impact larger businesses, the draft regulations also mention that small and medium businesses will need to comply too.

Digital Product Passports (DPPs) and their role in the ESPR explained 

A DPP is a digital record which can hold essential data about the credentials and lifecycle of a product. This can be accessed via a digital carrier such as a barcode, QR code or NFC tag attached to the product in question. 

It can hold many different types of data, but in terms of its relevance to the ESPR, DPPs can host data on the carbon footprint of the manufacturing process of the product, the materials used to produce it, where spare parts can be sourced, and crucially, how to responsibly dispose of or recycle a product when it comes to the end of its life. 

The increased awareness of this information is expected to encourage consumers to reduce waste and recycle more, and encourage companies placing products in the EU market to adopt more sustainable practices, which is why DPPs are a central part of the regulation. 

While the exact data points and requirements are still yet to be confirmed, the EU has already outlined priority industries such as batteries which it expects to implement a form of  DPPs (battery passports) by 2027, while other priority industries such as textiles and electronics are expected to be required to comply by 2030. As the regulation will also apply to any product placed on the EU market,  it will prove to have a global impact. 

The hidden potential for business growth 

While compliance will be the main reason some businesses adopt DPPs for the first time, for companies that are working to create, nurture, and grow a customer base quickly and successfully, they can be one of the best tools to support successful sales, and open up new revenue streams. 

Due to the nature of the accessibility of DPPs, they create a direct channel for companies to engage with customers and begin building loyalty quickly. Furthermore, the data gathered from DPPs could even help inform measurement of products in circulation, and therefore  sales trends and metrics, which can in-turn help companies track their stock, plan for sales events, and better understand the needs of their customer base.

Going back to compliance, they can also be used to support other ESG related initiatives – such as extended producer responsibility – by providing more information on how to get items repaired or where to dispose of them. They can even  facilitate compliance with other ESG regulations such as CSRD. DPPs are truly a tool that can support a multitude of uses. 

How do tech business leaders prepare? 

As clear requirements and an accurate timeline are yet to be finalised, companies have a window of opportunity to act now. All companies are encouraged to begin initial preparations, but prioritised industries that are especially vulnerable to the mandate are encouraged to begin preparation as soon as possible. 

For businesses starting from scratch now, the best first step is to assign a DPP lead or a team to spearhead the efforts towards compliance, and their first priority should be to aim to understand everything they can about the regulation today, and what will be defined in the near future. After this, you should have a clearer idea of what needs to happen to inform a clear strategy that begins with sourcing and organising data points. 

For time-poor tech entrepreneurs looking to both get ahead of compliance and find new opportunities to grow a successful business, taking the time now to take stock of the upcoming mandate will be time well spent.

Author

Lars Rensing, CEO of Protokol, brings over four years of expertise in the blockchain industry. As a seasoned Chief Executive Officer, he co-founded Ark and serves as Vice-chairman of its supervisory board, driving innovation and leadership in blockchain technology.