In 2019, French non-governmental organizations sued the energy giant TotalEnergies, claiming the company had failed to prevent serious social and environmental impacts from its projects in Uganda and Tanzania. Their legal case rested on France’s revolutionary 2017 duty of vigilance law, which made large companies legally responsible for human rights and environmental violations throughout their global supply chains. This landmark legislation sparked fierce debate about whether protecting human rights necessarily comes at the cost of corporate profits.

Dr. Bernhard Reinsberg at the University of Glasgow and Dr. Christoph Valentin Steinert at the University of Zurich set out to answer this fundamental question through a comprehensive analysis of mandatory due diligence laws. Their research examines whether France’s duty of vigilance law actually harmed the financial performance of regulated companies, as business lobbies had predicted, or whether human rights compliance and firm profitability could indeed be reconciled.

The stakes of this research extend far beyond France. The European Union adopted its own Corporate Sustainability Due Diligence Directive in 2024, requiring companies to identify and address human rights and environmental impacts across their operations and value chains. Germany implemented similar legislation in 2023, and numerous other countries are considering comparable measures. Understanding the real economic effects of such laws has become crucial for policymakers worldwide.

The French law emerged from tragedy and sustained advocacy. The 2013 collapse of the Rana Plaza factory complex in Bangladesh, which killed more than 1,100 workers and injured over 2,500 others, exposed the deadly consequences of inadequate supply chain oversight. The disaster provided momentum for French civil society organizations and trade unions who had been pushing for corporate accountability legislation since the early 2000s.

When the law finally passed in 2017, it established unprecedented legal requirements. Companies established in France employing at least 5,000 people in their French operations, or 10,000 people globally across all subsidiaries, must now establish and implement vigilance plans. These plans must include measures to identify and address risks that could harm human rights or the environment, covering not just the company’s direct operations but also the activities of suppliers and subcontractors throughout their global networks.

The legislation requires companies to make their vigilance plans public and include five key components: risk mapping to identify potential problems, regular evaluation procedures to assess these risks, appropriate mitigation measures to prevent abuse, an internal complaint mechanism for reporting violations, and an overall monitoring system to track progress. Failure to comply can result in civil liability and courts can order companies to fulfill their obligations.

Business organizations mounted fierce opposition to the law, arguing it would impose crushing compliance costs, create bureaucratic burdens, and potentially disrupt supply chains. Industry representatives warned that companies would struggle to pass increased costs on to customers in competitive markets, ultimately undermining their profitability and international competitiveness. The German Council for Economic Affairs epitomized these concerns, stating that the compliance effort would be “equivalent to several full time jobs and relatively large and frequent external service contracts that increase the cost of social and environmental progress.”

To test these claims empirically, the researchers employed a sophisticated analytical approach called difference-in-differences estimation. This method compares the outcomes of companies subject to the law against those not covered by it, tracking changes over time to isolate the law’s specific effects. The analysis used employee thresholds built into the legislation to create clear treatment and control groups, examining companies that crossed the regulatory boundaries against those that remained below them.

The research team assembled an unprecedented dataset spanning 11,504 French companies from 2008 to 2022, drawing on comprehensive financial data from the Orbis database. This sample included French companies, French subsidiaries of multinational corporations, and parent companies headquartered in France. The dataset’s scope allowed the researchers to examine not just immediate effects but also longer-term trends and potential anticipation effects as companies prepared for the law’s implementation.

Their primary focus was corporate profitability, measured as the likelihood that companies would make any profit in a given year. This approach helped mitigate the impact of extreme outliers while providing a clear indicator of financial health. The researchers also examined key profit drivers including staff costs as a percentage of revenues, warehouse turnover coefficients measuring how efficiently companies managed inventory, and overall revenue levels.

The findings directly contradicted business lobby predictions. Across all specifications and analytical approaches, the researchers found no evidence that the duty of vigilance law significantly affected the likelihood of regulated firms making profit once it came into force. The results held consistently whether examining companies subject to the domestic threshold of 5,000 employees in France or the global threshold of 10,000 employees worldwide.

Equally importantly, the law showed no significant effects on the underlying mechanisms that businesses claimed would drive profitability losses. Staff costs did not increase significantly for regulated companies, suggesting they were not hiring substantial numbers of additional compliance personnel. Warehouse turnover coefficients remained stable, indicating that supply chain disruptions were minimal. Revenue levels showed no systematic decline, contradicting fears that regulated companies would lose competitiveness.

The researchers did identify one notable pattern: some evidence of small negative effects on profitability in the years preceding the law’s implementation. This “anticipation effect” suggested that companies expecting to fall under the regulation experienced slightly lower probability of making profits as they prepared for compliance. However, these effects were modest in scale and temporary in duration, disappearing once the law actually took effect.

To probe deeper into corporate behavior, the research examined whether the law affected companies’ participation in voluntary environmental, social, and governance initiatives. The UN Global Compact, a voluntary corporate responsibility initiative advancing human rights, labor rights, environmental protection, and anti-corruption principles, served as a test case. Some theorists had predicted that mandatory regulations might reduce voluntary participation by providing alternative pathways to demonstrate responsibility, while others expected complementary effects.

The analysis revealed no significant impact on Global Compact membership among regulated firms. This finding suggests that mandatory due diligence laws and voluntary initiatives operate as complements rather than substitutes, with regulated companies maintaining their existing voluntary commitments while meeting new legal requirements.

Importantly, the researchers confirmed that regulated companies were actually complying with the law rather than simply ignoring it. Using data compiled by French NGOs monitoring compliance, they found that 93.7 percent of companies subject to the law had indeed published the required vigilance plans. Moreover, regulated companies were about 21 percent more likely to have published such plans compared to their unregulated counterparts, demonstrating clear behavioral changes in response to the legislation.

Additional evidence came from reputational risk data showing that regulated companies faced increased scrutiny from news media and external stakeholders after the law took effect. This pattern suggests that the legislation successfully increased attention to corporate due diligence practices, creating external pressure for meaningful implementation rather than merely perfunctory compliance.

The research design included several robustness checks to ensure the findings’ validity. Alternative analytical approaches using conventional fixed-effects estimators yielded similar results. The researchers also tested for effects using different base years for determining company treatment status and examined various specifications of control variables. Across all approaches, the core finding remained consistent: the duty of vigilance law did not significantly harm corporate profitability.

The researchers acknowledge important limitations in their analysis. The study focuses specifically on immediate effects within France and cannot address longer-term consequences or impacts in other jurisdictions with different legal frameworks. The German due diligence law, for instance, includes stronger enforcement mechanisms and higher penalties that might produce different outcomes.

The research also cannot determine whether the French law actually improved human rights and environmental conditions in global supply chains. While companies demonstrated high compliance rates in publishing vigilance plans, the ultimate test of success lies in whether these measures translate into meaningful protections for workers and communities worldwide.

Despite these limitations, the study provides powerful evidence that human rights compliance and corporate success can coexist. By demonstrating that France’s duty of vigilance law achieved high compliance rates without harming business performance, the research suggests that regulatory approaches to corporate accountability may be more viable than previously assumed. The findings directly challenge business lobby arguments that mandatory due diligence laws impose unsustainable economic burdens on corporations.

For the growing number of countries considering mandatory due diligence legislation, these findings offer both encouragement and guidance. They suggest that policymakers need not choose between protecting human rights and maintaining economic competitiveness, but can pursue both goals simultaneously through well-designed regulatory frameworks.