<p>Small and medium-sized suppliers (SMSs) encounter challenges in reducing carbon emissions (CER) because of financial limitations. Despite this, the potential of two carbon finance models, namely bank-led carbon finance (BLCF) and firm-led carbon finance (FLCF), remains understudied. This study adopts a mixed-methods approach integrating qualitative and quantitative methodologies, combining semi-structured interviews with reinforcement learning simulations to assess the effects of the two financing models on SMSs’ CER performance and supply chain economics. The findings indicate that under the FLCF, the core firm promotes consistent CER across SMSs by fulfilling its three supply chain stewardship roles: credit intermediation, service intermediation, and value intermediation. Notably, while BLCF improves aggregate CER levels, it paradoxically increases carbon emissions among high-CER SMSs due to diminishing marginal returns. In contrast, FLCF universally enhances CER efforts, achieving a 50% higher total CER output compared to BLCF. Moreover, FLCF enhances economic performance by 30% for SMSs, 14% for core firms, and 18% for the entire supply chain. The analysis also identifies key moderators, such as bank interest rates and core firms’ order allocation preferences, which significantly influence SMSs’ CER decision-making processes. These findings highlight the need to prioritize the development of FLCF, which establishes a synergistic ecosystem balancing CER efficacy with long-term economic sustainability.</p>