We show that uncoordinated climate policies, which expose firms to heterogeneous climate transition risk, induce supply-chain reconfiguration. Following the introduction of California’s cap-and-trade program, relationships involving regulated suppliers are more likely to terminate than otherwise comparable relationships with unregulated suppliers. Regulated suppliers experience operational disruptions, consistent with customers reallocating sourcing to reduce uncertainty about supplier reliability. These effects are concentrated among suppliers in competitive industries and producers of standardized inputs, where customer switching costs are low. The resulting reconfiguration is consistent with carbon leakage: customers that reallocate away from regulated suppliers shift toward supply chains with a higher carbon footprint.