Digital Product Passports: Enhancing Sustainability Marketing | Industry Insights | All MKC Content | ANA

Digital Product Passports: Enhancing Sustainability Marketing

By Dave Dickson

In recent years, sustainability has emerged as a key element of marketing programs, not only because it's the right thing to do, but because environmentally conscious initiatives resonate with upcoming generations of customers. According to the consultancy firm Deloitte, with 69 percent of generation Z consumers are actively trying to minimize their impact on the environment. As a result, these customers seek to align themselves with brands who espouse their values and are doing their part to create a more eco-conscious world.

Making Sustainability Actions Speak Louder Than Words

But brands should use caution as they seek to let gen Z consumers know about their efforts in sustainability programs. Because these consumers value authenticity, they're distrustful of companies that don't back up their social and environmental claims with actions. In fact, according to McKinsey & Company, 88 percent of gen Z consumers simply don't trust companies' environmental claims. They're skeptical of greenwashing and want brands' actions to speak louder than their words.

Digital Product Passports Substantiate Sustainability Claims

One way that companies are substantiating their sustainability claims is through a Digital Product Passport. This concept was introduced into legislation in the European Union in March 2022 and stipulates that companies selling products within the trade bloc provide product-level data on sustainability. This data, accessed by consumers by a QR code (or similar tag), helps them make product purchase decisions based on the environmental footprint of a product, in addition to optimizing the sustainability, reuse, and repair of products.

The goal of the E.U. legislation is to transition from a linear economy – in which goods follow a straight-line from manufacture, distribution, purchase, and then disposal – to a circular economy in which multiple actors across the value chain can work to reuse and recycle goods.

Several industries are targeted to use Digital Product Passports sooner than others, including fashion, electronics, furniture, and vehicles, among others. Although subsequent directives will be rolled out in the E.U. with industry-specific requirements, the data points required by the Digital Product Passport guidelines encompass attributes like product durability, reliability, composition of recycled content, energy efficiency, carbon footprint, and the possibility of maintenance and refurbishment. Companies will be required to apply these data points at the product model, batch, or item level, depending on the industry-specific rules.

The Digital Product Passport Model

Once consumers scan a QR code affixed to the product (or included with the product's documentation), the company can provide the sustainability data to them. The E.U. legislation requires that companies ensure proper authentication, reliability, and security for this sustainability data. This data can be stored either in a centralized system (on servers running in the cloud), or in a decentralized system (on a blockchain).

Centralized systems provide a model for which many companies have well-established workflows, although these server-based workflows are subject to security concerns and occasional downtime. Decentralized storage on a blockchain cryptographically validates the data so it is secure, immutable, and traceable. Because the data is stored in a decentralized manner across multiple blockchain nodes, it is highly available for access in real-time. Most importantly, Digital Product Passport blockchain solutions help fulfill the E.U.'s requirement that data be available if a company faces insolvency. Data in decentralized systems like a blockchain persist indefinitely, whereas if a company stops paying its server bills in a centralized model, the data becomes inaccessible.

Global, Interconnected Supply Chains Influence Regulations for Non-E.U. Companies

Although Digital Product Passport regulations affect companies that distribute products within the E.U., globally interconnected supply chains will influence companies who are suppliers to companies who do market within Europe. In addition, E.U. regulations influence other jurisdictions, much like the California Consumer Privacy Act followed quickly after the E.U.'s privacy-centric General Data Protection Regulation (GDPR). Companies should prepare for Digital Product Passports now, knowing that the eventuality is that they will likely be subject to some form of related regulation in the future.

Digital Product Passports as a Branded Customer Experience Touchpoint

Forward-thinking brands will realize that a Digital Product Passport is more than just a data manifest of sustainability attributes; it is an opportunity to drive brand engagement with customers through an additional touchpoint. Under this strategic thinking, marketers can include inspirational lifestyle content in their Digital Product Passports, inspiring customers with additional usage occasions. Or they can include post-sales service information, cross-sell/up-sell offers, and usage guides.

Brands using tokenized Digital Product Passports can use the unique capabilities of blockchains to offer redeemable loyalty rewards and offers, programmatic donations to social impact causes, and token-gated exclusive content to further engage customers.

Preparing to Implement Digital Product Passports

Digital Product Passports allow companies to drive increased transparency into the sustainability of their products, allowing participants across the product lifecycle to make more environmentally conscious decisions about the production, distribution, consumption, and reuse of goods.

Companies should begin preparing now for Digital Product Passports – identifying pilot implementations, testing and refining with customers, and scaling their projects – not only because sustainability resonates with attractive gen Z customer segments, but because it's also the right thing to do.

The views and opinions expressed are solely those of the contributor and do not necessarily reflect the official position of the ANA or imply endorsement from the ANA.

Dave Dickson is the CEO and founder of PicoNext, an end-to-end blockchain platform for brands.