Although digital transformation is increasingly regarded as a vital pathway toward corporate decarbonization, its environmental impacts can spread beyond the boundaries of the undergoing firms. This study explores whether digital transformation implemented by focal firms affects the carbon emission intensity of their upstream suppliers and downstream customers. Using data from Chinese A-share-listed companies over the period of 2009–2023, we find that focal firms’ digital transformation significantly reduces the carbon emission intensity of upstream and downstream partners. Supply chain concentration and partner digitalization partially mediate this relation, indicating that changes in supply chain structure and the diffusion of digital capabilities constitute important channels through which carbon reduction effects are transmitted. The effect is stronger for partners with higher total factor productivity, demonstrating that the efficacy of digital spillovers depends partly on firms’ productive efficiency and absorptive capacity. Further analysis shows that such effects are more prominent with heavily polluting industries, among smaller firms, and in industries with weaker competition. The results remain robust to alternative variable measurements, model specification, and treatments for potential endogeneity. These findings show that digital transformation generates environmental spillovers through vertical supply chain relationships and highlight the role of focal firms in facilitating supply chain carbon emission reduction.