The Climate Imperative
Digital Product Passports (DPPs) and global data reporting laws in Japan, California, the U.S., and especially the E.U. might just save us from ourselves on climate. Meanwhile, most industries quietly balk at the regulations. Let's focus here on the comprehensive E.U. legislation. Digital tracing and measurement are foundations of the E.U.'s circular, green transition, which needs data to activate change. The E.U. is counting on data-first governance to create the conditions for a fully circular economy.
At first glance, digital transformation appears to be pure cost, burden, and disruption. However, what began as a path to climate neutrality holds the potential for a more competitive, lower-cost business environment. The Ellen MacArthur Foundation projects that a circular economy, facilitated by DPPs, could slash global CO2 emissions by 3.6 billion tons annually by 2050 - that's almost 10% of our current global emissions of 36.4 billion tons (Global Carbon Project, 2021). Efficiency improvements matter, too; the World Economic Forum estimates that circular economy strategies could generate $4.5 trillion in economic benefits by 2030. However, legacy business advantages and intersectional challenges make change really hard.
The Legislative-Industry Misalignment
Here's the rub: public companies are legally obligated to maximize shareholder value, which means their shareholders want them to delay or squash data reporting requirements. Understandably, firms will fight to hang on to intellectual property, competitive data, proprietary standards, and market advantages. Understandable? Sure. Certain money now is worth more than potential money and social benefits in the future. To me, the most significant risk to climate policy goals is the misalignment between legislative intentions and industry interests around sharholder value. High-emission industries can and will slow the climate transition. However, that hurts others who believe climate scientists and will reach for savings from improved materials efficiency, logistics, transportation costs, and brand enhancement.
Political and Regional Complexities
Political interests add another layer of complication. For instance, Germany, reliant on energy imports during cold winters, may favor a transition schedule different from warmer or energy-independent countries. Poland, which dedicates significant resources to Ukraine's conflict with Russia, might prioritize security over decarbonization efforts. Every country faces tradeoffs that influence its approach to climate action. A harmonized approach works better, but we're more likely to get messy.
Operational Resistance to Climate Data Reporting
Revenue is one challenge vector. Operations are another. Digital transformation to meet climate and data reporting regulations will be a heavy lift, especially for large firms. We're talking about reorganizing their supply chains, vendor relationships, logistics, IT, training, and consumer marketing. In addition, new privacy concerns, comprehensive product information, technical hurdles, fragmented platforms, and network interoperability protocols are sand in the gears. Change = risk. This is a recipe for durable corporate resistance.
That said, there are potential long-term benefits. McKinsey & Company reports that digital transformation could slash operating costs by 10% to 30% over time. Moreover, adopting circular and sustainable practices could gain environmentally conscious consumers. It is a classic "Innovator's Dilemma" (Christensen), where more adaptable competitors are likely to disrupt legacy business models.
Examples of Resistance
European Battery Alliance (EBA) and the Global Battery Alliance (GBA)
Transforming a linear economy into a circular, sustainable one is a heavy lift, further complicated by misaligned incentives. Baked-in complexity is likely why even public/private efforts like the European Commission's European Battery Alliance (EBA) and the private Global Battery Alliance (GBA) are dragging their feet. Their Ethereum blockchain tracing solutions appear designed to exclude smallholder mining and Global South MSMEs. Ethereum-style blockchains work for high-value products in rich countries, but they're a non-starter in the Global South due to high, variable transaction costs. Even if battery consortiums are successful in enforcing their systems with Global South suppliers, the success will be experienced on the ground as ongoing colonialism.
Aura Blockchain
The Aura Blockchain consortium of luxury makers is another kind of resistance. They're solving for marketing, sales, and image rather than embracing the letter and spirit of circular economy transformation. By focusing on authentication and exclusive customer experiences, they're missing in action on climate, interoperability, and Global South equity.
CIRPASS and the Harmonization Effort
CIRPASS (Collaborative Initiative for a Sustainable, Circular, and Digital Product Passport) is a public/private consortium developing a standardized E.U. framework for DPPs. Great idea, but where's the focus on industry misalignment? Meaningful industry buy-in is necessary, but so is honesty about misaligned incentives. Nothing meaningful will change without a comprehensive embrace of economic transformation.
A Domestic Critique
In the U.S., right-wing resistance to date reporting regulation poses significant challenges to U.S. exports. The Chamber of Commerce is suing the SEC and California to block data reporting. Recent Supreme Court decisions undermined the administrative state, leaving California's law as the only one poised for enforcement. If these lawsuits are successful, domestic businesses like Gap or Ralph Lauren will have to juggle multiple operational systems or forego E.U. sales.
Public Opinion is the Change Agent
There are reasons to be hopeful. Transparency engages consumers and their buying power. Public opinion and awareness of what is possible are on the rise. As the understanding of supply chains and environmental impacts grows, we will likely see a shift in consumer buying preferences toward sustainable choices.
Data reporting is happening. At some point, maybe soon, delay will hurt shareholder value. Smart companies will start now and focus on where to find competitive advantage in this new reality. As U.S. Treasury Secretary Janet Yellen recently put it, the global transition to a low-carbon economy is "the single greatest opportunity of the 21st century." Don't miss it.