Concerns have arisen that due diligence laws, which hold companies accountable for human rights abuses and environmental damage in their supply chains, will negatively impact firm performance. Critics have argued that compliance costs, increased scrutiny, and potential disruptions to supply chains will erode profitability. This study investigates these concerns by examining the impact of the 2017 French 'loi de vigilance' on the performance of 11,504 French firms. Employing a difference-indifference analysis, we find no evidence that the law significantly affected the likelihood of profit of regulated firms. Furthermore, we observe no discernible impact on key profit drivers. However, we find a slight decrease in the likelihood of profit for firms falling under the regulation in the years preceding it. In further analyses, we show that the law had also no significant impact on firms' engagement with the UN Global Compact, suggesting that hard-law regulations and voluntary initiatives like the UN Global Compact may not be substitutes but rather complementary approaches to promoting sustainable business practices. Our findings challenge the prevailing narrative of significant negative consequences for businesses and provide valuable insights for policymakers considering similar legislation.
Reinsberg et al. (Thu,) studied this question.
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