The digital twin has already been in use in the manufacturing industry for years and its use by end consumers is also gaining ground – for example when accessing smart home components from an app. What role can the digital twin play in achieving sustainability goals?

Dr. Wolfgang Bock: The digital twin unfolds its greatest potential where we begin to use it collaboratively. As part of CSRD reporting, which will become mandatory in the EU for many companies, including those not listed on the stock exchange, from 2025, Scope 1, 2 and 3 CO2e emissions must be determined in accordance with the Greenhouse Gas Protocol. Today, it is already relatively easy for companies to calculate direct emissions from the combustion of fossil fuels (Scope 1) and indirect emissions from purchased energy, such as electricity or district heating (Scope 2). However, determining Scope 3 emissions is more difficult and is broken down into eight categories:

• Purchased goods and services
• Capital goods
• Fuels and energy-related emissions (if not included in Scope 1 or 2)
• (Upstream) transportation and distribution
• Waste
• Business travel
• Employee commuting
• Rented or leased fixed assets

In the case of the "Purchased goods and services" category, you need to know how much CO2 emissions are generated by the products you purchase from suppliers: “From cradle to gate”, i.e., from production of raw materials to the delivery to the company door. For complex products with multi-stage supply chains, this is tantamount to squaring the circle. The interoperable digital twin offers a solution to this problem.

How can this look in practice?

Dr. Wolfgang Bock: As part of a joint initiative, the Verband Deutscher Maschinen- und Anlagenbau e.V. (VDMA) (German Mechanical Engineering Industry Association) and the Zentralverband Elektrotechnik- und Elektroindustrie e.V. (ZVEI) (German Central Electrical Engineering and Electrical Industry Association) in collaboration with the German Federal Ministry of Economics and Technology have established the Industrial Digital Association (IDTA). Its mission is to develop a meta model for the interoperable digital twin (the asset administration shell, AAS) for the manufacturing industry. This AAS is a digital twin for industry products. The AAS contains all relevant information for the associated physical assets, such as a digital nameplate, information about the identity of the asset, the bill of materials of all included components and much more.

Thus when supplier A produces a component, a digital twin of this component is produced in parallel with the real asset. The same happens with supplier B. If the components from A and B are now assembled in a product, a new asset administration shell is created, which refers to the two asset administration shells of the subproducts. You now have all data related to the asset. This can also include the product carbon footprint (PCF). This means that as soon as a company produces an asset and CO2 equivalent emissions are generated in the process, this information is stored in the asset administration shell and/or in the corresponding submodels and can be shared with other companies along the supply chain. For CSRD reporting, very accurate data for the required PCF of a product could be determined in this way. The same applies to the recyclability of the components of a product.

What are the hurdles to using the digital twin along such supply chains?

Dr. Wolfgang Bock: One key challenge is data sovereignty. It is not enough to provide a standard for a digital twin. A data ecosystem must also be established in which it is clearly regulated who is allowed to view which data in this administration shell and who is not. And it must be possible to grant access to specific organizations at attribute level. Let's take the example of a mechanical engineering company that supplied its customer with a system for which remote maintenance is now to be carried out. The customer must grant certain access rights in his asset administration shell to the manufacturer so that he can view certain data. It must be possible to precisely control these access rights. One example for such a data ecosystem is Catena-X in the automotive industry.

The industry is currently making great efforts across all sectors to achieve the EU's climate targets. To what extent do regulatory requirements act as drivers for the adaptation of the digital twin?

Dr. Wolfgang Bock: With the entry into force of the CSRD, companies will also be subject to new reporting obligations. In the case of the “climate change” taxonomy, reporting is done in accordance with the GHG (Greenhouse Gas) Protocol. It would make sense for all suppliers in the supply chain to transmit the PCF values of their products to their customers using the interoperable digital twins. The OEM would then have transparency as to which products are particularly CO2-intensive to manufacture. Another example is the "circular economy" taxonomy. Here, too, interoperable digital twins can be used to transport information along the supply chain. This is because here, too, companies must specify in more detail under the CSRD whether the components used in their products are recyclable. Even though these are initially only information requirements, it is to be expected that the law will nevertheless have a steering effect. After all, the actual intention of the law is to provide a quantifiable database for the financial sector and rating agencies, which are increasingly evaluating companies from a sustainability perspective. In this respect, this type of reporting is certainly relevant for capital market-oriented companies. At the same time, it is almost impossible for OEMs with up to 20 supplier levels to keep the necessary information permanently up-to-date. The only way, therefore, is through the suppliers. That means they pass the pressure on to their tier 1 and tier 2 suppliers, who in turn pass it down. The big challenge is that this then extends through the entire supply chain. And that brings us back to the asset administration shell, which contains this information and the associated data ecosystem. In the automotive sector, we have already come a long way with Catena-X and the Asset Administration Shell as a data container. There is nothing comparable to this in other industries.

Beyond purely reporting, what opportunities does the digital twin offer for active supply chain management?

Dr. Wolfgang Bock: The digital twin does not only make us able to better understand the world as it is. It also allows us to simulate future scenarios to reach better decisions. Take the example of a bill of materials for a car: With almost all complex products, it is clear that sooner or later a part will fail or a supplier will produce defective parts. The problem for manufacturers today is that they don't know exactly which vehicles are affected by a recall because they lack information about which automobiles these parts are installed in. Here, a digital twin, which contains the bill of material, can create transparency about the installed components. On the other hand, the risk of future failures at specific suppliers can be determined on the basis of past loss events and the sourcing strategy can be adjusted accordingly, e.g., by replacing suppliers or building up a broader supplier base for particularly vulnerable components.

Will we see digital twins, which, in the future, will not only help companies but also consumers to act more sustainably in their everyday lives?

Dr. Wolfgang Bock: We are actually not that far away from this. Some companies are already calculating the PCF of their products. Unfortunately, there are many different definitions at present. Once a clear definition has been agreed upon here, there is nothing to stop the value from also being displayed to consumers. The PCF will then influence a purchase decision alongside price and quality. It is also conceivable that the digital twin will provide certificates from each supplier in the value chain proving that no human rights violations or environmental destruction occurred during production.