# Supply Chain Due Diligence Risk Assessment for the EU: A Network Approach to estimate expected effectiveness of the planned EU directive

**Authors:** Jan Hurt, Katharina Ledebur, Birgit Meyer, Klaus Friesenbichler, Markus Gerschberger, Stefan Thurner, Peter Klimek  
**arXiv:** [2311.15971](https://arxiv.org/abs/2311.15971)  
**Date:** 2023-11-27  
**Summary page:** https://www.summarizepaper.com/en/paper/2311.15971v2/

## Key points

- Impact of globalization on labor standards in the products we consume
- Evaluation of supply chain due diligence regulations, specifically focusing on the EU Corporate Sustainable Due Diligence Directive (CSDDD)
- Construction of a comprehensive network model based on structural business statistics of 30 million EU firms
- Likelihood of links to firms involved in human rights abuses within the European supply chain
- Small world effect observed in the network, with most firms being no more than three steps away from each other
- Approximately 8.5% of EU companies at risk of having child or forced labor in their first-tier supply chains
- About 82.4% likely to have such offenders at the second tier and over 99.1% have them at the third tier
- Variations in likelihood of human rights violations or child and forced labor violations across EU companies by country, sector, and size
- Ineffectiveness of current regulations focusing on monitoring individual buyer-supplier links due to redundancy and inability to isolate individual company value chains from global supply network
- Proposal to prioritize monitoring individual suppliers for maximum cost-effectiveness without compromising due diligence coverage
- Development of a random network model based on EU-wide structural business statistics, input-output data, and export information to assess probability of EU companies having connections with non-EU companies involved in human rights violations
- Introduction of Supply Chain Due Diligence (SCDD) Risk Indicator and SCDD Exposure Indicator to quantify risks and identify areas prone to potential links to human rights breaches
- Significance of topological characteristics in firm-level production networks for supply chain due diligence in Europe
- Need for comprehensive regulations considering interconnectedness of firms within global supply network and focus on monitoring individual suppliers rather than individual buyer-supplier links

## Summary

This paper examines the impact of globalization on labor standards in the products we consume and proposes an evaluation of supply chain due diligence regulations, specifically focusing on the EU Corporate Sustainable Due Diligence Directive (CSDDD). The authors construct a comprehensive network model based on structural business statistics of 30 million EU firms to assess the likelihood of links to firms involved in human rights abuses within the European supply chain. The model incorporates multiregional input-output data, EU import data, and firm-level production network facts to accurately represent the 900 million supply links of these firms. The analysis reveals that this network exhibits a small world effect, with most firms being no more than three steps away from each other in the network. As a result, approximately 8.5% of EU companies are at risk of having child or forced labor in their first-tier supply chains, while about 82.4% are likely to have such offenders at the second tier and over 99.1% have them at the third tier. The study also profiles companies by country, sector, and size to identify variations in the likelihood of human rights violations or child and forced labor violations across EU companies. The findings suggest that current regulations focusing on monitoring individual buyer-supplier links may be ineffective due to redundancy and the inability to isolate individual company value chains from the global supply network. Instead, the authors propose that regulations should prioritize monitoring individual suppliers for maximum cost-effectiveness without compromising due diligence coverage. To further support their analysis, the authors develop a random network model based on EU-wide structural business statistics, input-output data, and export information. They link this model with databases containing information on human rights violations in non-EU nations to assess the probability of EU companies having connections with non-EU companies involved in such violations. They introduce novel indicators - Supply Chain Due Diligence (SCDD) Risk Indicator and SCDD Exposure Indicator - to quantify these risks and identify areas of origin most prone to potential links to human rights breaches. Overall, this study highlights the significance of topological characteristics in firm-level production networks for supply chain due diligence in Europe. The findings emphasize the need for comprehensive regulations that consider the interconnectedness of firms within the global supply network and focus on monitoring individual suppliers rather than individual buyer-supplier links.