Compliance: what China's draft Environmental Code means for managers

A final version is expected at the end of 2025, and there may well be further amendments. Nevertheless, the current draft offers a valuable insight into the direction of China's environmental policy - and should attract immediate attention from business leaders and compliance managers.

The draft consists of around 1,200 articles in five interconnected books:

Especially books 2 and 5 are also of particular interest to companies - especially the book on legal liability, which clearly defines who is responsible, how offences are punished and how severely.

Legal responsibility does not stop at the corporate level. Individual managers can be held personally liable for a wide range of failings, including:

The penalties can include fines (up to a maximum of five times the direct damage caused), forced closures, the withdrawal of licenses, inclusion in public blacklists and, in serious cases, even criminal charges.

For example, a plant manager or managing director who fails to implement an emergency plan in the event of a chemical leak can be held liable under both civil and criminal law - even if they were not directly responsible for the leak itself.

The Code divides environmental risks into several categories, each of which has its own rules and penalties:

In addition, non-compliance with commitments to environmentally friendly development, such as energy efficiency, clean production or climate protection targets, can lead to legal and financial risks.

A striking feature of the Code is its broad scope: it enables enforcement not only against direct polluters, but also against companies that fail to manage environmental risks in their value chain. For example:

However, the obligations are less far-reaching than the previous German Supply Chain Due Diligence Act (LkSG). 

Similar liability may also arise, for example, in the event of significant deficiencies, omissions or falsifications in environmental impact assessment reports.

Following a chemical spill, an assistant manager delays reporting and fails to activate the approved emergency response plan. The draft code requires immediate notification and a coordinated response. Personal liability arises not only from the accident itself, but also from the failure to act, which exposes the manager to enforcement action, reputational damage and possible criminal liability for exacerbating environmental damage.

A company manager is responsible for the informal disposal of defective solar panels containing hazardous substances, bypassing certified waste disposal companies. According to the draft code, improper disposal of solid waste - especially heavy metals - can result in personal penalties. Managers face fines, legal sanctions and the loss of their operating license, and may also be liable to prosecution if the action causes environmental or health risks.

China's draft Environmental Code signals the beginning of a new era of regulation. Whether you are a general manager, operations manager, compliance officer, procurement manager, or in-house counsel, your role will involve some legal risk management for environmental obligations. Even before the final law is passed, companies that take this bill seriously will be better protected - legally, operationally and reputationally.

The law may still be at the draft stage. Your preparation should not be. Please contact your Rödl & Partner China team with any questions you may have.