LAUSR

The increasing environmental pressures and sustainability targets have necessitated organizations to actively adopting carbon‐efficiency practices, thereby, emphasize key stakeholders' increasing awareness of the decarbonization projects in their decision‐making. This paper seeks insights into whether and how corporate carbon performance (CCP) initiatives affect cost of debt (COD). Using a sample of publicly listed firms in China that disclosed carbon emissions from 2018 to 2022, this research verifies the U‐shaped CCP–COD relationship. Furthermore, information asymmetric moderates the U‐shaped CCP–COD relationship, with lower information asymmetric flattening the shape of the U‐shaped curve. Overall, the existence of a non‐linear pattern reconciles the extant inconsistent evidence that suggests either a positive or a negative CCP–COD linkage. This research provides comprehensive evidence that CCP implementations, while motived by ethical intention, can have a double‐edged effect. These findings are pertinent to corporate stakeholders and governmental policymakers concerning the consequences of carbon‐related activities of their organizations.