Based on 100 environmental violations occurring in China in 2018 and matched supply chain relationship data obtained from Bloomberg, our research shows that environmental violations have negative financial impacts on not only the violators but also their supply chain partners including customers and suppliers. Nevertheless, environmental transparency and supply chain diversity help these supply chain partners mitigate the negative effects arising from the environmental violations. While the mitigating role of environmental transparency is more pronounced for customers than suppliers, supply chain diversity has a similar mitigating effect for both customers and suppliers.