China’s environmental protection includes laws, administrative regulations, local regulations, departmental rules and provincial government rules. It also includes national standards (GB), industry standards (HJ) and local standards (DB).

Environmental laws have formed a system using the framework “1+N+4”.

• “1” refers to the Environmental Protection Law, which plays a fundamental and comprehensive role.
• “N” refers to specific environmental protection laws, including laws on pollution prevention and control of atmospheric emissions, water, noise, soil, radioactive substances, etc; the Environment Impact Assessment Law; the Marine Environmental Protection Law; and the Wetland Conservation Act, etc.
• “4” refers to laws aimed at ecological environmental protection of special geographic areas, specific regions or watersheds, including the Yangtze River Protection Law (2021-03-01), Yellow River Protection Law (2023-04-01), Black Land Protection Law (2022-08-01), and the Ecological Protection Law for the Qinghai-Tibet Plateau (2023-09-01).

At the same time, the State Council also issued the Regulations on Environmental Protection of Construction Projects, the Regulations on Sewage Disposal Permits, etc. The provincial and city level’s people’s congress and its standing committee have also formulated local environmental protection regulations. Additionally, there are many standards related to environmental management and pollutant discharge limits.

According to law, the Supreme People’s Court can make judicial interpretations for judicial trials in 2023. The Supreme People’s Court and the Supreme People’s Procuratorate updated the Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Environmental Pollution, which came into force on 15 August 2023. Subsequently, the Supreme People’s Court updated the Interpretation on Several Issues Concerning the Application of Law to the Trial of Cases of Disputes over Liability for Ecological and Environmental Tort (effective 1 September 2023), and issued Several Provisions of the Supreme People’s Court Concerning Evidence in Civil Litigation for Ecological and Environmental Tort, which came into effect on 1 September 2023.

The Ministry of Ecology and Environment (MEE) manages and supervises the environmental protection work of the whole country. At the same time, it retains the National Nuclear Safety Administration and establishes the National Office for the Import and Export of Ozone-Depleting Substances. The MEE’s main responsibilities include tackling climate change and the usual environmental supervision.

At the local level, the Environmental Protection Law stipulates that the local people’s governments should be responsible for the environmental quality of their own region. The Ecological and Environmental Department (EED), above the county level, should manage and supervise the environmental and ecological work of the entire region.

The Central Environmental Protection Inspection System

There is a major system for promoting ecological civilisation and eco-environmental protection. The Central Ecological Environment Protection Inspection Group is an organisation formed and approved by the Central Committee of CPC and the State Council to undertake specific ecological environment protection inspection tasks.

It mainly supervises local CPC Committees and local governments, departments with important eco-environmental protection responsibilities, and relevant enterprises whose production and business activities have a significant impact on the ecological environment. Supervision is carried out once every five years.

Environmental protection inspection mainly includes three aspects:

• the party committee, the government of the national and provincial environmental protection – major decision-making and deployment of the means for implementation;
• outstanding environmental problems and dealing with the situation; and
• the implementation of environmental protection responsibilities.

In addition to the central environmental protection inspections, environmental protection inspection mechanisms have also been established at the provincial level.

NDRC, MOHURD, MIIT, MOT, etc

There are many departments responsible for environmental protection, such as the following.

• National Development and Reform Commission (NDRC): responsible for the comprehensive research and formulation of economic and social development policies, overall balance, and promotion of strategic adjustment and upgrading of industrial structure, including energy policy development.
• Ministry of Housing and Urban-Rural Development (MOHURD): responsible for the energy efficiency of building, waste water treatment facility plans, etc.
• Ministry of Industry and Information Technology (MIIT): responsible for developing and implementing industry plans, policies and standards, including the energy saving of traditional industries, the new energy industry plan, etc.
• Ministry of Transport (MOT): responsible for the environment of transport industry, etc.

The Environmental Protection Law is the basic law, with other specific environmental laws covering particular environmental assets (see 1.1 Environmental Protection Policies, Principles and Laws). In addition, the Wildlife Protection Law of China came into force on 1 May 2023 in order to protect wildlife, save precious and endangered wildlife, maintain biodiversity and ecological balance, and promote harmonious coexistence between humans and nature.

On 18 October 2023, the Supreme Court released ten typical cases of judicial protection of national parks. Adhering to the principle of the strictest rule of law, in which the illegal exploitation of national strategic resources is severely punished within the range of legal penalties, the court strictly controls the application of probation, with the development and utilisation of judicial resources. In civil public interest litigation cases of ecological damage, while the perpetrators have been sentenced to criminal liability, they have also been seriously pursued for civil liability. This reflects the principles of accountability for damage and the strictest rule of law. These cases provide reference for subsequent cases.

The penalties for violating the Environmental Protection Law and related laws depend on the consequences of the offence. If it constitutes a criminal offence, criminal liability will be pursued in accordance with the law. If it does not yet constitute a crime, it will be punished in accordance with the Administrative Penalty Law and the Measures for Ecological and Environmental Punishment. (For more details, please refer to 5.1 Key Types of Liability.)

According to the Civil Code, pollution of the environment and damage to the ecology are subject to tort liability. This includes stopping the infringement, removing obstruction, eliminating danger, repairing the ecological environment, apologising and compensating for damages, etc. (For more details, please refer to 5.1 Key Types of Liability.)

The investigators of the MEE and EED have the right to take the following measures:

• enter relevant sites for inspection, reconnaissance, sampling, voice recording, photographing, video recording and on-site sampling monitoring and testing;
• enquire of the business entities and relevant personnel and request them to explain relevant matters and provide relevant materials;
• review and copy production records, waste water discharge records and other relevant documents.

When facing government inspection, obstructing law enforcement or dishonesty will be fined by the EED. This is required across the entire environmental law system, including Article 98 of the Law on the Prevention and Control of Air Pollution, Article 81 of the Law on the Prevention and Control of Water Pollution and Article 103 of the Solid Waste Law.

Environmental Impact Assessment (EIA)

According to the Environmental Impact Assessment Law and Regulations on Environmental Protection of Construction Projects, construction projects shall be subject to environmental impact assessment and approval by or registration with the EED.

Pollutant Discharge

Discharges based on the Regulation on the Administration of PDP are officially implemented. Pollutant discharging industries are required to obtain a Pollutant Discharge Permit or carry out emissions registration before the emissions/waste are discharged.

Discharge of Sewage

According to the Regulations on Urban Drainage and Sewage Treatment, enterprises, institutions and individual industrial and commercial households engaged in industrial, construction, catering, medical and other activities, if they discharge sewage into urban drainage pipelines, need to apply to urban drainage authorities for a drainage permit. This permit is issued by a construction authority rather than EED. Drainage permits are valid for five years.

X-ray Radiation Safety Licence

According to the Regulations on the Safety and Protection of Radioisotopes and Radiation Devices, an enterprise that produces, sells and uses radiation and radiological devices shall obtain a Radiation Safety Licence in accordance with the provisions of this chapter. The licence is valid for five years.

Hazardous Waste Trading Licence

According the Solid Waste Law, enterprises engaged in collecting, storing, utilising and disposing of hazardous waste should apply for a Hazardous Waste Trading Licence or a Hazardous Waste Collection Licence, in accordance with relevant state regulations; the former is valid for five years and the latter for three years.

The regulatory approach includes environmental permits, environmental administrative supervision and inspection, and environmental administrative penalties. Environmental permit refers to an administrative decision made by an environmental law enforcement agency in accordance with the application of an individual or organisation, after examination, to permit or not permit the applicant to engage in a certain activity.

Environmental administrative supervision and inspection refer to actions taken by the environmental law enforcement agencies in order to achieve the function of environmental management, the administrative counterpart being whether environmental protection laws and regulations and specific administrative requirements are being complied with.

An environmental administrative penalty is an administrative sanction imposed by a specific environmental law enforcement agency on a citizen or organisation that violates environmental laws and regulations, and is divided into behavioural penalties, property penalties and warnings.

Article 9 of the Administrative Licensing Law stipulates that administrative licences obtained in accordance with the law shall not be transferred, except for those that are transferable in accordance with legal conditions and procedures as stipulated by laws and regulations. The exceptions are mainly land use permits obtained by way of concessions and mining permits for mineral resources.

Administrative Penalties

Violations of environmental permits or approvals can lead to administrative penalties imposed by the environmental protection authorities. These penalties may include fines, warnings or orders to cease operations or rectify the violations. (For more details, see 5.1 Key Types of Liability.)

Revocation or Suspension of Permits

Environmental authorities may revoke or suspend the permits or approvals for the specific activity that led to the violation. This can effectively shut down the operation until compliance is achieved.

Criminal Charges

In cases of severe violations, such as illegal discharges of hazardous pollutants or significant harm to the environment, individuals or entities responsible may face criminal charges. This can result in imprisonment and substantial fines. (For more details, see 5.1 Key Types of Liability.)

Environmental Remediation or Compensation

Violators may be required to remediate environmental damage or pay compensation for environmental damage caused by their actions. This may include the cost of environmental restoration or remediation.

China’s environmental legal liability includes criminal liability, administrative liability and civil liability. The subject of liability includes enterprises, enterprise managers and individuals who commit pollution damage acts.

Environmental Criminal Liability

Environmental criminal liability mainly includes the following crimes:

• environmental pollution (Article 338 of the Criminal Law);
• destroying a computer information system (Article 226 of the Criminal Law); and
• issuing false proof documents for EIA and environmental monitoring reports (Article 229 of the Criminal Law).

According to the Amendment to the Criminal Law (XI), enterprises or enterprise managers may be the criminal subjects of organising or carrying out serious environmental pollution. Generally, the enterprises will be criminally fined, while individual crimes will be sentenced to less than seven years’ imprisonment and fined. However, if the following illegal acts occur and cause serious environmental consequences, the imprisonment can increase to a maximum of 15 years:

• discharging, dumping or disposing of any hazardous waste in protective areas;
• discharging, dumping or disposing of any hazardous waste in important rivers and lakes as determined by the state;
• acts causing the serious loss of farmland;
• acts causing any serious injury, illness, disability or the death of a person.

The Supreme People’s Court and the Supreme People’s Procuratorate updated the Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Environmental Pollution, which took force on 15 August 2023. It adjusts the conviction and sentencing standards for environmental pollution crimes. It also adjusts the statutory penalties for the crime of polluting the environment from the original two grades to three grades, and amends and improves the criteria for ascending grades of sentencing. The rules for dealing with the behaviour of environmental data falsification are clarified, as are the rules of leniency and severity in handling criminal cases of environmental pollution.

Environmental Administrative Liability

Environmental administrative liability for environmental damage is mainly administrative penalties and administrative compulsory enforcement measures.

The Administrative Penalty Law stipulates the types of administrative punishments, including:

• warning and circulation of disciplinary notice;
• fines, confiscation of illegal gains and illegal property;
• temporarily detaining the licence, lowering the level of qualification and revoking the licence;
• restricting the development of production and business operation activities, ordering the suspension of production or business operation, ordering closure and restricting employment;
• administrative detention; and
• other administrative penalties as prescribed by laws and administrative regulations.

According to the Administrative Penalty Law, an administrative authority may seek penalty against a citizen, legal person or another organisation for violation of the administrative order in accordance with the law by reducing rights and interests or increasing obligations, such as a fine, confiscation of illegal gains and illegal property. According to the Environmental Protection Law of China, those who fail to rectify the illegality within the timeframe imposed may also be fined per day, which could significantly increase the penalty.

If the violation is serious, the licence may be temporarily detained, and the level of qualification could be lowered or revoked. Other options are restricting production and business operation, ordering the suspension of production or business operation, closing down and administrative detention (the last being a punishment measure imposed on the main person-in-charge).

In addition to the Administrative Penalties Law, the MEE has promulgated the Measures on Administrative Penalties for Ecology and Environment. (For more details, see 3.2 Breaching Protections.)

Besides the administrative penalty, enterprises committing illegal acts may also face administrative compulsory enforcement measures such as sealing up and confiscating the property.

Environmental Civil Liability

Environmental civil liability is mainly the liability for environmental pollution and ecological damage.

According to the Civil Code, civil penalties include:

• cessation of the infringement;
• removal of obstacles;
• elimination of danger;
• restitution of property;
• restoration to the original condition;
• repair, reworking or replacement;
• continued performance;
• compensation for loss;
• payment of liquidated damages;
• elimination of adverse effects and rehabilitation of reputation; and
• offering an official apology.

Where any law provides for punitive damages, such a law shall apply.

Where environmental pollution or ecological damage causes harm to others, the tortfeasor shall assume the tort liability. The infringed party may claim compensation for losses, an apology or restoration to the original state.

For damage to the ecological environment, provincial and municipal governments and their designated agencies or an organisation prescribed by law shall have the right to claim damages from the infringer. Article 1232 of the Civil Code stipulates a punitive compensation system for environmental pollution and ecological damage under specific conditions.

Environmental civil liability adopts the principle of no-fault liability and the inverse principle of proof liability. If a dispute arises due to environmental pollution or ecological damage, the actor shall bear the burden of proof for demonstrating the existence of grounds for not bearing liability or mitigating liability as stipulated by law, and there being no causal relationship between their behaviour and the damage.

In addition to this, public interest litigation is involved in civil liability (see 11.1 Civil Claims).

Administrative Measures for the Legal Disclosure of Environmental Information of Enterprises

The Administrative Measures for the Legal Disclosure of Environmental Information of Enterprises were issued by the MEE and came into force on 8 February 2022. The Measures stipulate the enterprises that are specifically required to disclose environmental information such as key emission units and enterprises implementing mandatory clean production audits. The Measures stipulate that enterprises must disclose the following:

• basic information on enterprise production and ecological environmental protection;
• enterprise environmental management information, including information on ecological and environmental protection administrative licences, environmental protection tax, environmental pollution liability insurance and environmental protection credit evaluation;
• pollutant generation, management and emission information, including information on pollution prevention and control facilities, pollutant emissions, toxic and hazardous substance emissions, industrial solid waste and hazardous waste generation, storage, flow, utilisation and disposal, and self-monitoring;
• carbon emissions information, including emissions, emissions facilities and other information;
• ecological environment emergency information;
• information on ecological and environmental offences; and
• annual temporary environmental information disclosed in accordance with the law.

Enterprises that violate the provisions of the Measures and do not disclose environmental information, or disclose environmental information that is untrue or inaccurate, will face penalties of ordering correction, notification and disciplinary criticism, as well as fines.

In addition to the above mandatory environmental information disclosure requirements for sectoral enterprises, the MEE has issued the Guidelines on Voluntary Disclosure of Environmental Information by Enterprises (Draft for Public Comments), which encourages enterprises to voluntarily make disclosures of environmental information.

The SFC has stipulated the contents to be disclosed in the “Environmental and Social Responsibility” section of the annual/semi-annual reports of enterprises. The Stock Exchanges have also given guidance on the environmental protection responsibilities to be fulfilled by enterprises in the course of corporate governance and the content of environmental information to be disclosed in social responsibility reports.

Historical pollution problems mainly exist in soil and ground water pollution. Since the historical pollution prevention and control facilities and environmental management system are not satisfied, there may be landfill waste, chemical leakage and sudden accidents that result in soil and ground water pollution.

When the land is handed over to the next owner or returned to the government, it may be found that the damage caused by the historical pollution accident still exists. The land needs to be investigated and evaluated according to the current laws and regulations or even organised for restoration. Responsibility for restoration is still allocated according to the polluter’s responsibility principle. The “Changzhou poisoned land event” has proved that the unit which caused historical pollution should bear the environmental tort liability.

According to the Measures for Reporting Information on Environmental Emergencies issued by the MEE, the reporting requirements mainly include:

• types of environmental incidents;
• reporting timelines;
• reporting methods;
• information required;
• investigation and documentation; and
• penalties for non-compliance.

In China, environmental accidents may lead to legal liability including criminal, administrative and civil liability.

Criminal Liability and Key Defences

According to criminal law, criminal liability for environmental pollution can be up to 15 years’ imprisonment and a fine. The main defences to criminal liability include:

• the limitation of accountability has not been exceeded;
• the identification of the liable person is inaccurate;
• the authenticity, legality and relevance of evidence;
• the legitimacy of the procedure; and
• the suspect’s attitude in admitting a mistake, which can be used as a defence of diminished responsibility.

Administration Liability and Key Defences

In environmental administrative liability, the main defences include:

• limitation of accountability – if normal/general illegal acts are not found within two years, there should be no administrative punishment, but those acts that involve citizens’ lives, health and safety, financial safety and causing harmful consequences will be extended to five years;
• the identification of the responsible person is inaccurate;
• the fact determination is inaccurate, the evidence lacks authenticity, legitimacy and relevance;
• the law enforcement procedures are not in compliance with law;
• the clients did not commit intentional or negligent mistakes; and
• the illegal circumstances are minor or the consequences are not serious.

In recent years, various places have introduced a “list of exemptions for minor offences” and discretionary rules: for example, the Yangtze River Delta Integrated Ecological Penalty Regulations.

Civil Liability and Key Defences

China’s civil liability for compensation adopts the principle of “filling up”. In recent years, there have been cases of compensation of hundreds of millions of yuan (CNY). The main defences for environmental civil liability include:

• the limitation of action exceeds three years (for continuing acts, from the date of the end of the act);
• force majeure exists; and
• there has been fault on the part of the third party or victim.

Enterprises violating laws and regulations related to environmental protection may be subject to criminal, civil or administrative liability. (For more details, see 5.1 Key Types of Liability.) In addition, this may have a negative impact on the environmental credit evaluation of the enterprise. It will be subject to negative public evaluation results, suffer loss of eligibility for government procurement, be impacted regarding bank loan financing, and be subject to more frequent supervision and other disciplinary actions.

According to the Environmental Protection Tax Law, enterprises, public institutions and other producers and operators that directly discharge taxable pollutants into the environment are regarded as payers of environmental protection tax and should do so in accordance with the law.

Taxable pollutants include air pollutants, water pollutants, solid waste and noise, as stipulated in the Table of Environmental Protection Tax Items and the Table of Taxable Pollutants and Equivalent Values.

Natural resource tax is also regarded as a kind of green tax. China’s Resource Tax Law stipulates that taxable products include energy minerals (oil, natural gas, coal, geothermal, etc), metal minerals, non-metallic minerals, hydro gas minerals and salt.

The Resource Tax Law stipulates that enterprises and individuals developing taxable resources within Chinese territory and other sea areas under their jurisdiction shall pay resource tax in accordance with this law, and the specific scope of the resource tax shall be determined by the Table of Resource Tax Items and Rates.

Incentives for Good Environmental Citizenship

Tax incentives

The following tax incentives apply, as per the Environmental Protection Tax Law and its Implementation Regulations.

• If the concentration of taxable atmospheric or water pollutants is lower than 30% of the national and local pollutant discharge limits, an environmental protection tax of 75% shall be levied. If the concentration of taxable atmospheric or water pollutants is lower than 50% of discharge limits, an environmental protection tax of 50% shall be levied.
• Those legally established urban and rural sewage centralised treatment and domestic waste centralised treatment sites that discharge corresponding taxable pollutants that do not exceed the national and local discharge standards are exempt from environmental protection tax.

The following tax incentives apply, as per the Regulations for the Implementation of the Enterprise Income Tax Law.

• The environmental treatment industry and certain businesses that invest in pollution control equipment, energy conservation and emission reduction technologies may qualify for tax incentives. For example, waste water treatment plants can be refunded at the rate of 70% of VAT.
• However, if the taxpayer is subject to administrative penalties exceeding CNY100,000, they shall not enjoy the VAT refund policy within 6 months. If two administrative penalties exceeding CNY100,000 occur within 12 months, the VAT refund policy shall not be enjoyed for 36 months from the month of the second penalty decision.

Green credit

Financial institutions in China have started to provide preferential credit terms to businesses that meet certain environmental criteria, encouraging green financing and sustainable practices.

An environmental credit system has been developed in accordance with the provisions of the Enterprise Environmental Credit Evaluation Measures (for trial implementation). Enterprises are classified into four levels, ABCD, according to their environmental behaviour.

A corporate credit repair system has also been developed: for example, in Shanghai, according to the Shanghai Municipal Enterprises and Public Institutions Ecological Environment Credit Repair Management Regulations (for trial implementation). Enterprises and institutions with ecological and environmental credit failures that take the initiative to rectify ecological and environmental violations may, in accordance with the prescribed conditions and procedures, apply for restoration to the department that imposed the ecological and environmental administrative penalty.

Environmental certification

Obtaining environmental certifications, such as the “Green Label” or “Environmental Management System” certifications, can enhance a company’s reputation and market access, creating incentives for environmental responsibility.

Penalties for Bad Environmental Citizenship

The penalties for bad environmental citizenship are mainly criminal, civil and administrative liability or a lower credit rating. (For more details, see 5.1 Key Types of Liability.)

A parent company has independent legal status and normally is not impacted by the environment liability caused by its subsidiaries. However, if the parent company has engaged in acts that are related to the causes of an environmental accident, such as excessive control, the subsidiaries’ illegal behaviours could also be attributed to the parent company. Hence, in particular cases, the shareholders might bear civil, administrative or even criminal liability.

A waste water company in Nanjing has repeatedly discharged high-concentration waste water and toxic and hazardous sludge hazardous waste into the Yangtze River, causing enormous ecological and environmental damage. The water company paid the ecological environment restoration fee in the final reconciliation agreement, and its parent company assumed joint and several liability.

In the “3.21” accident caused by the explosion of hazardous waste, even the legal representative and GM of the parent company had assumed criminal liability.

ESG requirements focus on the disclosure of enterprises information. The requirements of enterprises are a combination of mandatory disclosure and voluntary disclosure. There is no requirement for mandatory disclosure of ESG reports by Mainland Chinese enterprises.

The Hong Kong Stock Exchange has divided the ESG disclosure requirements into three stages since 2015:

• the first stage is that highly polluting enterprises require mandatory disclosure;
• the second stage is that non-disclosure is explained; and
• the third stage is mandatory disclosure.

Now Hong Kong is in stage 2.5: some key indicators require mandatory disclosure, non-disclosure or warning.

The China Securities Regulatory Commission (CSRC) revised the “Guidelines for the Governance of Listed Companies” by adding content on environmental protection and social responsibility, establishing the basic framework for ESG information disclosure of Chinese listed companies.

The MEE has issued and implemented the “Management Measures for Legal Disclosure of Enterprise Environmental Information”, which specifies the subject and content of legal disclosure of enterprise environmental information (see 5.2.5.2 Disclosure therein for further details).

On 25 July 2023, the State-owned Assets Supervision and Administration Commission of the State Council released the “Research on the Preparation of ESG Special Reports for Central Enterprise Holding Listed Companies”, which includes the “Reference Index System for ESG Special Reports of Central Enterprise Holding Listed Companies” to further standardise the ESG information disclosure of central enterprise holding listed companies, which is a milestone in the development process of local ESG in China.

Regular Inspection

Companies operating in China, especially those engaged in industries with potential environmental impacts, may be subject to regular environmental inspection conducted by the relevant environmental protection authorities such the MEE and the EED.

Cleaner Production Audit

This is an audit mechanism to assess the environmental protection status of an enterprise with the aim of reducing environmental pollution and resource wastage. Depending on how the audit is participated in, it can be categorised as either voluntary or mandatory.

Voluntary audits are audits that are voluntarily applied for by the enterprise, and the degree of participation and audit criteria are decided by the enterprise itself. According to the Interim Measures on Cleaner Production Audit, mandatory audits are conducted by the government or relevant organisations to compel some enterprises to carry out audits. Audit standards and the degree of participation are determined by the government or organisation.

According to the Criminal Law and relevant provisions, if the environmental pollution crimes are unit crimes, the directly responsible persons in charge and other responsible persons should be fined and punished. The “directly responsible person in charge” includes the actual controller of the unit, the principal person in charge or the authorised person in charge and senior management personnel.

In environmental administrative responsibility, administrative detention measures are targeted at company executives and other directly responsible persons. The detention is less than 15 days for the following acts:

• refusing to stop construction when there is no EIA;
• refusing to stop discharging although there is no valid discharge permit;
• dishonesty with regard to discharging and data; or
• producing or using forbidden pesticide.

China does not yet have an environmental liability insurance system for individual executives. There may be some commercial insurance companies that offer something similar. However, except for the situation of environmental accidents causing damage, the aforesaid violation of laws requiring administrative or criminal liability may be excluded from the insurance coverage.

China’s current environmental pollution liability insurance is divided into compulsory and voluntary insurance.

The Environmental Protection Law stipulates encouragement of environmental pollution liability insurance. The Solid Waste Law, which took effect in September 2020, stipulates that units collecting, storing, transporting, utilising and treating hazardous waste should take out environmental pollution liability insurance in accordance with relevant state regulations.

The Measures for Compulsory Environmental Pollution Liability Insurance (Draft) was also published in 2017. According to the draft, compulsory environmental pollution liability insurance contains personal damage to third parties, property damage, ecological damage and emergency treatment and clean-up costs.

The Environmental Protection Law does not directly regulate the environmental protection responsibilities of financial institutions and lenders.

Accordingly, the China Banking Regulatory Commission (CBRC) issued Green Credit Guidelines to provide guidance for the development of green credit for banking financial institutions, and proposed that environmental risk assessment and management should be strengthened. It also proposed that pre-loan due diligence should be undertaken and customers with non-compliant environmental and social performance should not be granted credit.

According to China’s Green Credit Guide, banking financial institutions shall establish and constantly improve the system of environmental – including social risk management policy – procedure, developing the customer’s environmental and social risk assessment standard and social risk evaluation and classification. The results should be the basis of rating, credit access, management and exit.

If necessary, qualified and independent third parties may also be engaged to evaluate or audit the activities of banking financial institutions, so as to fulfil their environmental and social responsibilities.

Where an enterprise or an individual causes personal injury or property damage to others due to environmental pollution or ecological damage, the party that commits the infringing act shall bear tort liability. The infringed party may file a civil lawsuit in accordance with the relevant provisions of tort liability in the Civil Code and relevant environmental protection laws.

If pollution causes harm to the public interest, the legally prescribed authorities (the People’s Procuratorates) and qualified environmental NGOs may file civil environmental public interest litigation against the polluter. The people’s governments at the provincial or municipal level and their assigned departments (eg, environmental authorities) may ask for compensation through negotiation. If the negotiation cannot reach agreement, then authorities mentioned above have a right to sue in court, which is named “lawsuit for damages to ecological environment”.

The other situation is default. If both parties have agreed on environmental protection obligations in the contract, the party in breach of the contractual obligations shall be liable for breach of contract: for example, environmental obligations agreed in the context of mergers and acquisitions of companies.

Punitive damages are clearly stipulated in the Civil Code (which did not exist before December 2020). Where the infringer intentionally pollutes the environment and destroys the ecology in violation of the law and causes serious consequences, the infringed shall have the right to request corresponding punitive damages. There are three conditions:

• violation of laws;
• intentional violation; and
• causing serious consequences.

The Interpretation of the Supreme People’s Court on the Application of Punitive Damages to the Trial of Ecological and Environmental Tort Dispute Cases, which came into effect on 1 January 2022, specifically regulates this measure.

In China, the Civil Procedure Law regulates the joint action, in which one party consisting of numerous persons may be brought by a representative elected by such persons. The procedural acts of such representative shall be binding on all members of the party they represent.

If the object of the action is of the same category and a party consists of numerous persons, and upon institution of the action the number of persons is not yet determined, the court may issue a public notice stating the particulars of the case and the claims and requesting that the claimants register with the court within a certain period of time.

Claimants who have registered with the people’s court may elect a representative to engage in litigation; if no such representative can be elected, the court may discuss the matter of determining a representative with the registered claimants. The procedural acts of a representative shall be binding on the party they represent.

Friends of Nature v Gansu Branch of State Grid for Wind and Photovoltaic Abandonment is regarded as the first case of climate change litigation in China. Wind and photovoltaic abandonment refers to the abandonment of wind and photovoltaic solar energy, which are renewable and clean energy sources, in favour of fossil energy sources. The plaintiff in the case argued that the defendant’s behaviour had led to an increase in emissions of carbon dioxide, sulphur dioxide and nitrogen oxides, and that the large amount of greenhouse gases generated by the generation of electricity from fossil energy sources had exacerbated climate change, and accordingly proposed that the defendant be ordered to cease its behaviour of abandoning wind and solar energy and to pay CNY1.718 billion in compensation for ecological damages.

The case was filed in September 2016 with the court for environmental civil public interest litigation. It went through the Lanzhou Intermediate Court dismissing the prosecution, the Gansu High Court directing the Gansu Mining Court to hear the case, and the Mining Court holding several hearings and mediation. Finally, on 10 April 2023, both parties reached a mediation agreement. The case was finally concluded on 26 July 2023 after seven years of protracted litigation. Ultimately, the respondent agreed to actively promote a green and low-carbon transition, increase investment in new energy projects and promote a green and low-carbon energy transition.

Article 153 of the Civil Code stipulates that a juristic act violating the imperative provisions of any law or administrative regulation shall be void, unless the imperative provisions do not result in the nullity of the juridical act.

The parties may agree on the allocation of the responsibility and liability for the prevention and control of pollution through agreement, without violating the mandatory provisions of laws and administrative regulations. When environmental violations occur, one party has the right to require the other party to bear the corresponding liability for pollution.

However, the responsibility of pollution prevention and control agreed through an agreement cannot be a defence to the infringed claiming compensation, nor can it be a defence to administrative punishment.

For more information on this issue, see 9.1 Environmental Insurance.

Soil pollution in construction land laws and regulations are as follows:

• the Soil Pollution Prevention and Control Law;
• Management Measures for the Soil Environment of Contaminated Land;
• Management Measures for the Soil Environment of Industrial and Mining Land (Trial);
• Soil Environmental Quality Soil Pollution Risk Control Standards for Construction Land (Trial) (GB 36600 – 2018); and
• local soil pollution control regulations – for example, the regulations on soil pollution prevention in Shanghai (effective 1 October 2023) and Jiangsu Province (effective 1 September 2022).

According to the law, the person (or persons) responsible for soil pollution has the obligation to implement soil pollution risk control and remediation. If the persons responsible for soil pollution cannot be identified, the land use rights holder shall carry out soil pollution risk control and remediation, including soil pollution investigation, risk assessment, risk control, remediation, risk control effect assessment, remediation effect assessment and later-stage management. Article 94 of the Soil Pollution Prevention and Control Law stipulates the “substituted fulfilment” system.

According to Article 45 of the Soil Pollution Prevention and Control Law, the main bodies that bear the responsibility for soil pollution control include:

• the person responsible for soil pollution;
• the land use rights holder; and
• the local people’s government and its relevant departments.

The Soil Pollution Prevention and Control Law has always emphasised the principle of “polluter pays”. There are two ways in which an environmental public interest litigation defendant can assume responsibility for environmental remediation: (i) organising the implementation of environmental remediation or (ii) bearing the costs of remediation. Therefore, in the event that the polluter does not have the ability or willingness to do so, it can fund the implementation of soil remediation entrusted to a third party.

Based on the Interim Measures for the Determination of Persons Responsible for Soil Pollution on Construction Land and the Interim Measures for the Determination of Persons Responsible for Soil Pollution on Agricultural Land, the administrative responsibility of persons responsible for soil pollution could be determined. The above two Measures shall not apply to the activities of determining the person responsible for soil pollution arising from civil disputes over soil pollution between responsible parties and individuals.

Civil liability is determined on the basis of the polluter pays principle and the Civil Code relating to torts provisions.

Tort Liability Litigation

According to Article 96 of the Soil Pollution Prevention and Control Law, a person can bear the tort liability according to law.

In civil disputes arising from soil pollution, the parties concerned may apply to the competent ecological and environmental authorities of the local people’s government for mediation and processing, or may bring a lawsuit to the court.

Public Interest Litigation

According to Article 97 of the Soil Pollution Prevention and Control Law, if soil pollution damages national interests or social public interests, procuratorates and NGOs may bring a lawsuit to the court in accordance with the Environmental Protection Law, the Civil Procedure Law, the Administrative Procedure Law and other laws.

As for organisations, according to Article 58 of the Environmental Protection Law, social organisations that meet certain conditions may bring a lawsuit to court against acts polluting the environment, destroying the ecology, and damaging public interest. (For more detail, see 11.1 Civil Claims.)

Waste operators have the right to transport, utilise and dispose of industrial solid waste.

According to the Soil Pollution Prevention and Control Law, the process of soil pollution remediation and treatment shall not cause new pollution to the soil and the surrounding environment. Waste, solid waste and hazardous waste generated in the land remediation activities shall be handled in accordance with laws and regulations. Waste operators transferring contaminated soil should develop a transfer plan detailing the transport time, mode, route and the amount of contaminated soil, destination, final disposal measures, etc, reported in advance to the ecological environment authorities of the location and the receiving destination.

Waste operators shall not transfer solid waste out of the administrative areas of provinces, autonomous regions and municipalities directly under Central Government for storage and disposal without approval. Waste operators shall establish solid waste management accounts and record them truthfully. Unauthorised dumping and stockpiling of wastes is not permitted.

For responsibility for breaches of these obligations, see 5. Environmental Liability.

The process of investigating environmental accidents is based on the Measures for Investigation and Punishment of Environmental Emergencies promulgated by the Ecological and Environmental Department from 1 March 2015 onwards. The investigation process is as follows:

• handle the scene and take emergency measures to control pollution;
• on-site investigation and report;
• handle the accidents according to law on the basis of preliminary investigation;
• implementation of the handling opinions; and
• preparation of environmental emergencies investigation report.

China now has a “1+N” system for climate change policy.

• “1” refers to the “Opinions of the State Council of the Central Committee of PCP on the Complete and Accurate and Comprehensive Implementation of the New Development Concept on Doing a Good Job of Peak Carbon and Carbon Neutrality” issued on 24 October 2022.
• ”N” refers to the State Council’s issuance of the Action Plan for Peak Carbon by 2030 on 26 October 2021.

On 22 September 2021, the State Council of China issued working guidance for CO₂ peaking and carbon neutrality in full and faithful implementation of the new development philosophy, which is based on the development stage and national conditions of China. Five major goals have been put forward:

• creating an initial framework for a green, low-carbon and circular economy;
• improving energy efficiency;
• increasing the proportion of non-fossil energy consumption;
• reducing CO₂ emissions; and
• increasing the carbon sink capacity of ecosystems.

The MEE has issued Management Measures for Voluntary Greenhouse Gas Emissions Reduction Trading (for Trial Implementation), effective 15 September 2023. In addition, China has enacted the renewable energy Cleaner Production Promotion Law, the Provisional Regulations of Voluntary Greenhouse Gas Emissions Trading Management, and the Measures for Carbon Emissions Trading Management (Trial). It has also released carbon emissions calculations and verification standards for 24 industries (eg, power generation, steel, civil aviation, chemical, cement). China is drafting regulations on carbon emissions trading and preparing to draft a Climate Change Response Law.

The MEE, together with the Development and Reform Commissions, the People’s Bank of China, the Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission, jointly issued the Guidelines on Promoting Investment and Financing in Response to Climate Change, to promote climate investment and financing.

The carbon emission targets are mainly “30, 60”. China proposes that carbon dioxide emissions peak by 2030 and strives to achieve carbon neutrality by 2060.

According to the 14th Five-Year Plan and the Long-term Goals for 2035, by 2025, energy consumption and CO₂ emissions per unit of GDP will be reduced by 13.5% and 18%, respectively, from 2020 levels.

Although China has not completely banned asbestos mines and asbestos products, it has long been aware of the harm of asbestos dust to the environment and the human body. In 2007, China issued the National Standard for Occupational Health Management of Asbestos Operations (GBZ/T 193-2007). From the perspective of occupational health monitoring, the standard provides effective and feasible occupational disease-prevention measures and operation procedures for preventing asbestos dust emission during asbestos operation and for controlling dust pollution.

The key laws and regulations on waste management in China are as follows:

• Solid Waste Law (2020 revised);
• Law on the Promotion of a Circular Economy;
• Regulations on the Management of Medical Waste; and
• Measures for the Management of Hazardous Waste Business Licences.

Depending on waste type and harmfulness, the Solid Waste Law sets requirements for industrial solid waste, domestic garbage, construction waste, agricultural solid waste, hazardous waste pollution prevention, and stricter management and punishment of industrial solid waste and hazardous waste.

Many local governments have issued regulations on the management of domestic garbage, setting requirements for classification, collection, transportation and disposal.

According to Article 36 of the Solid Waste Prevention and Control Law, entities generating industrial solid waste shall establish and improve a system of responsibility for the prevention and control of pollution of the environment throughout the entire process of generating, collecting, storing, transporting, utilising and disposing of industrial solid waste. At the same time, if an entity that produces industrial solid waste entrusts others to transport, utilise or treat waste, it shall, before signing the agreement, verify the qualification and technical capacity of the entrusted party and sign a written legal contract, which should also stipulate the requirements for pollution prevention and control responsibilities and consequences for all parties.

If an enterprise that produces industrial solid waste fails to verify the technical capability of the transportation and disposal enterprises, and fails to stipulate the requirements for pollution prevention and control in the written contract, it may still be subject to administrative punishment, and shall bear joint responsibility with the entrusted party that causes environmental pollution and ecological damage.

Article 66 of the Law on the Prevention and Control of Environmental Pollution Caused by Solid Waste stipulates that an extended producer responsibility (EPR) system shall be established for electrical and electronic products, lead storage batteries, and automotive traction batteries.

The producers of electrical and electronic products, lead storage batteries, automotive traction batteries and other products shall, as required, implement a used product recovery system that fits the sales of the products themselves, disclose the system to the public, and achieve effective recovery and utilisation.

The design and manufacture of products and packaging shall comply with the state regulations on cleaner production. Enterprises that produce, sell or import products and packages that are listed in the compulsory recovery list shall recycle such products and packages in accordance with the relevant regulations.

In addition, the state encourages the R&D, production, sale and use of agricultural film that is environmentally degradable and harmless.

According to the Emergency Response Law, when an accident or disaster occurs, enterprises shall immediately organise the emergency rescue team and staff to rescue victims, evacuate people, resettle threatened persons, control hazards, indicate the danger zone, block the dangerous sites, and take other necessary measures to prevent the harm from expanding, at the same time reporting to the local people’s government at the county level.

The Measures for Emergency Management of Environmental Emergencies stipulate that when an enterprise causes an environmental emergency accident, it shall immediately initiate an environmental accidents emergency plan to cut off or control pollution, and take other necessary measures to prevent harm from expanding, give timely notice to related units and residents, report to the local county level environmental department, and accept investigation and processing.

Chapter V of the Environment Protection Law stipulates information disclosure and public participation. Citizens, legal persons and other organisations shall have the right to access environmental information, participation and supervision and the right of environmental protection.

The Administrative Measures for the Legal Disclosure of Environmental Information of Enterprises stipulate the relevant environmental information that enterprises should disclose. (For more details, see 5.2 Disclosure.)

According to the Regulations on the Disclosure of Government Information, administrative organs should take disclosure as normal, non-disclosure as an exception, and follow the principles of fairness, justice, legality and convenience. There are two forms of disclosure of government information by administrative organs: voluntary disclosure and application disclosure.

Some enterprises are mandatorily required to disclose environmental information in accordance with the Administrative Measures for the Legal Disclosure of Environmental Information of Enterprises (see 5.2 Disclosure for details).

Green finance arrangements mainly include green loans, green bonds, green insurance, green funds and investments, green leasing and financial leasing. The key entities responsible for overseeing and promoting green finance include:

• People’s Bank of China (PBOC), which sets policies and guidelines related to green finance and works on promoting environmentally responsible financial practices;
• China Banking and Insurance Regulatory Commission (CBIRC), responsible for regulating and supervising the banking and insurance sectors; and
• China Securities Regulatory Commission (CSRC), in charge of regulating and supervising the securities market in China.

Investigation on Excessive Emissions Involving Change of Land Use or Recovery and Transfer of Land Use Right

According to Article 67 of the Law on the Prevention and Control of Soil Pollution, land use right owners shall conduct soil pollution investigations, in accordance with regulations, before the use of land for production and the operation of key units under supervision of soil pollution is changed or their land use right is withdrawn or transferred.

The state has issued the Guidance for Environmental Investigation, Assessment and Restoration of Industrial Enterprise Sites (Trial) and technical guidelines for soil pollution investigation, monitoring and risk assessment in construction land (from HJ.1-2019 to HJ 25.6-2019) to guide due diligence work.

Environmental Risk Assessment and Investigation in Credit Financing Procedures

While banking financial institutions are required to conduct environmental due diligence in accordance with regulations and standards before granting credit lines (as mentioned in 10.2 Lender Protection), other national environmental protection laws do not require environmental due diligence.

Financial institutions may entrust professional institutions to assist in the assessment of green investment. According to the regulation, financial institutions are also required to evaluate the ability of investment project subjects to manage environmental risks.

The Scope of Environmental Due Diligence

In order to prevent and control potential environmental legal liability risks, some enterprises usually carry out special environmental due diligence voluntarily before listing and M&A. The scope and depth of environmental due diligence in specific M&A shall be determined by each client according to their own needs.

Environmental due diligence is the basis for enterprises to carry out follow-up environmental risk prevention and control. Increasingly, enterprises attach importance to the pre-investigation and entrust corresponding professional institutions, such as lawyers and technical experts, to carry out corresponding investigations, which can help enterprises to effectively identify and control corresponding risks.

In the process of product sales, procurement vendors have a legal obligation to disclose some environment-related information, such as a seller’s request to the buyer to provide MSDS.

The Measures for the Administration of Limiting the Use of Harmful Substances in Electrical and Electronic Products stipulate that sellers of electrical and electronic products shall not sell any products that violate the national or industrial standards for limiting the use of harmful substances in these products.

In the process of M&A, it is not a mandatory legal requirement for the seller to disclose information to the buyer. However, the principle of good faith stipulated in Article 7 of the Civil Code is the basic principle that civil subjects should follow when engaging in civil activities.

For more details on this issue, see 7.2 Environmental Taxes.

Mediation and Negotiation

Mediation and negotiation can be done through formal mediation organisations or facilitated by local authorities. In cases of pollution or environmental harm, affected parties may attempt to negotiate compensation or remediation with the responsible party.

Administrative Complaints

Individuals or entities can file complaints with local environmental protection authorities or other relevant government agencies when they believe environmental laws or regulations have been violated.

Arbitration

Parties to an environmental dispute submit the dispute to an arbitral institution by prior or subsequent agreement. The arbitral institution resolves the dispute by making a judgment and ruling on the facts of the dispute and the relationship of rights and obligations in its capacity as a third party.

Litigation

In cases where individuals or businesses have suffered direct harm due to environmental pollution or accidents, they can initiate legal actions to seek compensation for damages.

Environmental NGOs and government authorities may bring public interest litigation against violators of environmental laws or regulations for the protection of public interest, even when individual harm is not apparent.

China has now developed an environmental legal system, and significant progress has been made. However, problems of inconsistent enforcement and violations of the law still exist. Many provisions are distributed in separate laws, and the promotion of the codification of an environmental code would be conducive to safeguarding the consistency, authority and operability of environmental legal norms.

The following reforms would also be welcome within the environmental legal and regulatory framework:

• insisting on the continued promotion of the specialisation of environmental resources and the promotion of professional development;
• state strengthening of the specialisation of environmental resources trials;
• establishing and improving a trial system that combines environmental resources trial courts and collegiate courts (in accordance with the principles of real need and adapting to local conditions);
• encouraging grassroots courts to set up specialised teams for environmental resource trials by setting up specialised collegiate courts;
• advocating that persons with professional knowledge and business backgrounds, such as environmental law, serve as presiding judges; and
• developing comprehensive climate change regulations and policies to address the challenges of global warming and meet international climate commitments.