Phil Brown & Emanuele Di Francesco
- Compliance is triggering investments in traceability, but should not define its value.
- The same systems built to meet regulatory requirements can support wider business decisions and new commercial opportunities.
- Shared and interoperable information is needed to track materials across multiple companies, demonstrate closed-loop recovery and avoid double counting.
- Visibility over volume, quality, timing and value of material flows can strengthen investment cases and support long-term off-take agreements.
- Data systems for traceability are not just an exercise for the sake of compliance, but a building block of functioning and competitive circular markets.
Europe is having an intense debate about the cost of compliance. The EU’s simplification agenda and successive Omnibus packages were a reaction and reflection upon a growing concern that companies are spending too much time and money meeting regulatory requirements, and not enough on investing and growing new and sustainable production processes.
Much of this debate has focused on corporate reporting and due diligence, but the underlying question applies more broadly: when regulation requires companies to build new systems for collecting and proving information, if this is for reporting only, what value do they get in return? What decisions or processes does this help them develop?
This question matters for the circular economy. New requirements around Digital Product Passports, battery passports, data on recycled content and material provenance, will require companies to collect, verify and exchange much more information about products and materials. Doing this will not be free, as companies need new technologies and processes and will incur increased costs associated with verifying and auditing data.
If all the investments needed for generating and exchanging traceability data are only used to demonstrate compliance, we will have missed a major opportunity. Much of the information needed for compliance is, in fact, information that is required for circular markets to function.
This should therefore change how we think about the cost of traceability. Once companies are investing in the systems needed to collect and exchange this information, these should help create trust between buyers and sellers, coordinate circular supply chains, support investment decisions and allow circular products and materials to compete on demonstrated performance.
The question, then, is how to make this investment count: who bears the costs, who benefits and how are those benefits impacting both regulators and market actors? Answering this requires a deeper understanding of what economic value can be generated, for whom, and how that value can be captured.
Compliance is the starting point
Compliance is likely to remain the immediate reason why many companies begin investing in traceability systems. As implementation deadlines approach, firms need to understand what information they will be required to collect, how that information will be verified and whether their products will continue to meet the conditions for access to the European market.
This is already visible in the experience of European technology providers developing digital solutions for traceability, mass-balance accounting and supply-chain data sharing systems. In the work of Circularise, a leading European technology company developing digital traceability solutions for complex industrial supply chains, regulatory requirements frequently provide the initial reason for a company to engage with traceability solutions.
For instance, Circularise’s collaboration with Honda, a leading Japanese manufacturer, has been focusing on the need to prepare for upcoming battery-passport requirements. The work with Teijin, a Japanese material producer, has additionally shown that once traceability requirements are addressed, the conversation shifts towards how traceability can support wider business objectives. In this sense, regulation opens the door, but the value of traceability extends well beyond regulatory reporting.
A different pattern emerged in a collaboration with an American consumer goods company. Because the company was not yet facing the same immediate regulatory pressure, it was able to approach Digital Product Passports (DPPs) primarily as a tool for innovation, customer engagement and new business models. The project demonstrated how the use of DPPs can communicate the high share of recycled and bio-based polymers used within the product, while also supporting experimentation to reveal and assess the uncertainty that still surrounds consumer engagement, willingness to pay, and the extent to which consumers value and act upon sustainability information.
Trust is the currency of circularity
Circular markets depend on claims that are often difficult for buyers, regulators or other value-chain actors to verify independently. A manufacturer may claim that a product contains a certain percentage of recycled material. A supplier may need to demonstrate where that material originated. A recycler may need to prove that recovered material was processed and reintroduced into production. A company making environmental claims to consumers increasingly needs evidence capable of substantiating them.
Without reliable information, uncertainty enters each of these transactions. And where information cannot be trusted, circular materials and products can struggle to differentiate themselves from alternatives.
Traceability strengthens the credibility of claims regarding material provenance, recycled content and recovery pathways, providing the trust upon which secondary material markets depend. This plays a central role as European legislation progressively shifts from encouraging circularity to requiring demonstratable evidence of it.
Regulations such as the Critical Raw Materials Act (CRMA), Packaging and Packaging Waste Regulation (PPWR), Ecodesign for Sustainable Products Regulation (ESPR), and EU Battery Regulation & End-of-Life Vehicles Regulation (ELVR), all will require reliable evidence that materials have been recovered, processed and reintroduced into production. Dynamic records and auditable chains of custody can help prevent double counting, verify provenance and demonstrate that recovery targets are genuinely being met.
The growing emphasis on verifiable information extends beyond the realm of material recovery. While regulations such as CRMA, ESPR and PPWR set the structural mandates for recycled content, the Green Claims Directive (GCD) and Empowering Consumers for the Green Transition (ECGT) Directive heavily penalise the unsubstantiated use of environmental claims in marketing activities.
By tying unique product identifiers to trusted data, a robust, immutable chain-of-custody system reduces the risks of greenwashing, strengthens consumer confidence and provides the evidence needed to demonstrate compliance with increasingly demanding market and customs requirements. Whether materials are tracked through physical segregation or mass-balance approaches, reliable data is rapidly becoming a prerequisite for market access and engagement with consumers via claims.
Coordinating multi-tier circular value chains
Building trust in secondary material markets is only one function of traceability. Equally important is its ability to coordinate multi-tier circular value chains, where materials, products and information flow across multiple organisations and stages of the value chains.
Compliance with recovery targets and audit requirements depends on the ability of actors across different tiers of the value chain to generate, exchange and verify information consistently.
Regulations demand rigorous verification of material provenance to ensure compliance with strict closed-loop definitions. For instance, the ELVR mandates that at least 20% of the required recycled plastic content must be sourced directly from end-of-life vehicles, translating to a mandatory 3% closed-loop automotive plastic recovery by 2032 and 5% by 2036.
The digital tracking infrastructure required to harmonise data flows for other materials, such as strategic metals under the CRMA, must also be interoperable with the recycling pipelines feeding the automotive sector, to prevent double-counting and audit failures across regulatory boundaries.
The information base needed for investments
Importantly, the same data collection and reporting requirements can also support and contribute to investment decisions. Traceability data can transform circularity from a compliance obligation into a bankable financial asset.
Recovery facilities, reverse logistics hubs, and advanced remanufacturing or recycling operations require massive Capital Expenditure (CapEx) and rely on predictable payback periods.
Investors will not finance this infrastructure without empirical certainty regarding the volume, timing, quality, and market value of current (or future projections of) material flows. Granular data on recovery rates and specific R-strategies (Repair, Remanufacture, Recycling) could help to bridge this financing gap.
By mapping secondary feedstock availability against upcoming regulatory demand mandates, traceability systems can provide data (likely aggregated and anonymised) to support material flow analysis to stabilise volatile spot market prices.
Ultimately, this structural transparency would be what allows buyers and facility operators to execute credible, long-term offtake agreements, turning theoretical circular models into data-backed, actionable investment propositions. Therefore, supporting the EU’s resiliency, competition and circular economy mandates, which require both physical and digital infrastructure.
Power of Procurement: turning traceability into market preference
Public authorities are major purchasers in sectors ranging from construction and infrastructure to mobility, information technology, healthcare and furniture. Their purchasing criteria can therefore influence which products, materials and business models succeed in the market.
Circular procurement, however, faces an information challenge of its own. If public authorities want to favour products with higher recycled content, greater repairability, longer expected lifetimes or other circular characteristics, they need credible ways of assessing those characteristics. Otherwise, procurement criteria risk relying on static declarations, difficult-to-compare information or claims that are costly for buyers to verify.
Traceability can strengthen this connection between circular performance and purchasing decisions. Procurement criteria could progressively reward products accompanied by credible information concerning repairability, recycled content, provenance or other relevant circular characteristics. Existing instruments such as environmental product declarations could increasingly be complemented by more dynamic traceability systems where appropriate.
Over time, public buyers could therefore provide preferences for products carrying operational Digital Product Passports or equivalent systems capable of demonstrating relevant circular attributes.
The significance extends beyond government markets. Companies supplying public institutions frequently also serve private businesses and consumers. The information systems and capabilities developed to compete for major public contracts can therefore spread across broader product portfolios and supply chains.
Procurement consequently offers an important mechanism for turning transparency into market value. If companies that can credibly demonstrate circular performance gain an advantage in purchasing decisions via scoring criteria, investment in traceability becomes more than a cost of regulatory compliance and part of the competitive proposition.
Make the investment in data count
Building traceability systems will cost companies time and money. The priority should be to keep those costs as low as possible, avoid duplicate requirements and make information easy to exchange across different systems.
But simplification should not mean reducing the ambition to compliance alone or reducing thresholds for companies. If companies are already investing in collecting and verifying product and material data, that information should be useful beyond reporting. It should help buyers trust what they are purchasing, companies coordinate with suppliers and customers, public authorities reward demonstrated circular performance, and investors better understand where circular business opportunities exist.
This requires information that is credible, interoperable and usable, while protecting commercially sensitive data. It also means designing regulatory requirements with their wider market use in mind, rather than treating every reporting obligation as a separate exercise.
Europe is already creating demand for traceability, and companies are already developing the technologies to deliver it. The opportunity now is to make that investment count: not more data (just) for the sake of compliance, but better information that helps circular markets work.
Phil Brown
Phil is Head of Sustainable Innovations at Circularise and holds Bonsucro’s digital board seat. He has more than 15 years’ experience across circular economy and collaborative innovation, and holds a PhD in collaborative circular-oriented innovation from Delft University of Technology. He previously co-founded Circular Strategies and worked as a Research Engineer in Circular Value Chains at HSSMI.
Emanuele Di Francesco
Senior Manager Communications and Partnerships, World Resources Forum