International non-governmental organisations have long called upon companies to carefully examine their supply chains for evidence of human rights abuses and environmental harm. They aim to ensure that firms do not engage in or support exploitative practices such as child labour, forced labour, dangerous working conditions, or environmental degradation. A stark reminder of the consequences of lax oversight is the 2013 collapse of the Rana Plaza textile factory in Bangladesh, which killed over a thousand workers. The factory produced clothing for prominent European retailers, including Mango, C&A, Primark, and KIK, highlighting the global nature of supply chain responsibility.

In response to such tragedies, several countries have taken legislative action to mandate greater accountability in supply chains. France and Germany, for instance, have introduced laws requiring companies to conduct due diligence to prevent human rights and environmental violations among their suppliers. The European Union followed suit in 2024 with a directive addressing corporate supply chain conduct. Switzerland, meanwhile, introduced a regulation in 2022 focusing specifically on transparency and due diligence regarding conflict minerals and child labour, underscoring a growing consensus across Europe for regulatory action.

France stands out as a pioneer in this movement, having implemented its supply chain law in 2017. This legislation requires French companies with over 5,000 employees—or foreign firms with more than 10,000 workers operating in France—to adopt comprehensive due diligence plans. These plans must address all business activities, including those of subcontractors and suppliers, concerning human rights, occupational health and safety, and environmental protection. While the law has a clear ethical impetus, it has also faced considerable criticism from business associations that argue it imposes cumbersome bureaucracy and excessive compliance costs.

To investigate whether these concerns hold weight, Christoph Steinert of the University of Zurich and Bernhard Reinsberg of the University of Glasgow conducted an empirical study focusing on the economic effects of France’s 2017 supply chain law. Using data from over 11,000 French firms, the researchers compared companies just above and below the employee thresholds to determine whether the regulation had a measurable impact on profitability or revenue. Their findings were striking: companies subject to the law were no less profitable than those not required to comply. While some firms did experience higher initial costs during the adjustment period, there was no evidence of long-term economic detriment.

Furthermore, the study revealed that compliance with mandatory due diligence requirements did not deter French firms from participating in voluntary initiatives, such as the United Nations Global Compact (UNGC). The UNGC promotes corporate commitment to ten principles covering human rights, labour, environmental responsibility, and anti-corruption. French companies subject to the national law were just as likely to engage with these voluntary standards as their counterparts, suggesting that mandatory and voluntary frameworks for ethical business practices can coexist rather than compete.

These findings significantly challenge the dominant narrative pushed by certain business lobbies, which claim that such regulations undermine economic competitiveness. The research supports the notion that protecting human rights and the environment need not come at the expense of financial performance. As Christoph Steinert points out, political leaders like German Chancellor Friedrich Merz have proposed rolling back similar laws in Germany and at the EU level. However, the French example provides compelling evidence that corporate accountability and economic prosperity are not mutually exclusive. Rather than viewing ethical regulation as a burden, it may be time to recognise it as a foundation for sustainable and responsible growth in the global economy.

More information: Bernhard Reinsberg et al, The French duty of vigilance law: reconciling human rights and firm profitability, Review of International Political Economy. DOI: 10.1080/09692290.2025.2519189

Journal information: Review of International Political Economy Provided by University of Zurich