A Korean think tank said local companies must improve their environmental, social, and corporate governance (ESG) as the European Union (EU) moves to adopt "digital product passports" by 2026.

In a report published Friday, the Korea International Trade Association's Institute for International Trade said the EU's ecodesign regulations would go into effect this year after approval by the European Council and European Parliament.

The regulations form the basis for the digital product passports, which will likely be adopted as soon as 2026.

The passports would digitally collect and store the lifecycle data of all products distributed in the EU, including data on production, distribution, sales, usage and recycling.

They would also include information on product sustainability such as durability, recyclability, repairability, percentage of recyclable materials, and environmental footprint.

The Institute's report said Korean companies that sell goods in the EU or participate in supply chains must prepare for the adoption of the passports.

It said Korean firms must work to improve their ESG, including reducing their carbon footprint and resolving human rights and labor problems while adding that they should also adopt digital technology to store supply chain data.

The report urged the government and relevant agencies to support the production of pilot digital passports for batteries and textiles, help small and mid-sized companies respond to the digital passport framework, and build necessary infrastructure.