It is a common refrain from some business associations: new laws requiring corporate due diligence in supply chains will cripple the economy. They argue that such regulations breed excessive bureaucracy and impose sky-high compliance costs, ultimately harming businesses. However, a recent study by Bernhard Reinsberg (University of Glasgow) and Christoph Steinert (University of Zurich) paints a different picture, suggesting that economic success and ethical supply chains are not mutually exclusive.

Unpacking Supply Chain Due Diligence

For years, international NGOs have championed the cause of scrutinizing corporate supply chains. Their aim is to stamp out human rights abuses and environmental violations, ensuring that suppliers do not engage in practices like child labour, environmental pollution, or neglecting worker safety. The devastating 2013 collapse of a textile factory in Bangladesh, which claimed over a thousand lives while producing garments for major European brands, served as a grim reminder of the urgent need for such oversight.

In the wake of such tragedies, countries like France and Germany have enacted laws mandating corporate due diligence in supply chains. The European Union followed suit in 2024 with its own directive, and Switzerland has had regulations in place since 2022 covering due diligence and transparency for conflict minerals and child labour. The UK’s Modern Slavery Act (2015) requires large businesses (with over £36 million in turnover) to publish an annual statement detailing how they prevent modern slavery in their own operations and supply chains. Recognizing the limited scope of the current Modern Slavery Act, the UK government and parliamentary committees are actively considering expanding its provisions to address broader issues of supply chain responsibility.

The French Experiment: A Long-Term View

To understand the impact of these laws, the team of researchers delved into the specifics of the French supply chain law, enacted in 2017. This particular legislation was chosen because it is the only one of its kind that has been in effect long enough to allow for an analysis of its long-term economic effects.

The French law applies to all French companies and their subsidiaries with over 5,000 employees, as well as companies headquartered in France or abroad with more than 10,000 employees. These businesses are required to implement a comprehensive due diligence plan covering all company activities, including those of subcontractors and suppliers, with respect to human rights, health and safety, and environmental standards.

Challenging the Narrative: No Negative Impact on Profit or Revenue

The researchers conducted a statistical analysis of data from over 11,000 French firms, comparing regulated companies with similar unregulated companies. Their findings cast doubt on the validity of concerns about economic harm.

"On average, companies subject to the law were just as likely to be profitable as those not required to implement due diligence measures," the researchers explain. While some initial higher costs were incurred as companies adjusted to the new regulations, there is no evidence of significant long-term economic disadvantages. Furthermore, the study found that the national supply chain law did not deter French companies from participating in voluntary initiatives like the UN Global Compact, which promotes corporate responsibility principles.

These findings challenge the prevailing narrative put forth by many business lobbies. The French example clearly demonstrates that it is indeed possible to achieve economic success while upholding fundamental human rights and environmental standards.

Read the full paper on Dr Bernhard Reinsberg WordPress website.  

Literature:

Bernhard Reinsberg, Christoph V. Steinert. The French duty of vigilance law: reconciling human rights and firm profitability. Review of International Political Economy, 17 July 2025. DOI: 10.1080/09692290.2025.2519189

First published: 31 July 2025

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