Carbon pricing mechanisms have emerged as crucial policy tools to address climate change and transition towards a low-carbon economy. This research explores the implications of carbon pricing on financial markets, the role of financial institutions in supporting these initiatives, and the financial risks and opportunities that arise. Empirical studies reveal that carbon pricing policies impact asset valuations in the stock market, with carbon-intensive companies experiencing negative effects. The bond market is also affected, as firms with higher carbon emissions face higher borrowing costs due to increased financial risks associated with carbon pricing. Furthermore, commodity markets undergo price adjustments due to carbon costs, affecting supply and demand dynamics. Financial institutions play a vital role in facilitating the successful implementation of carbon pricing mechanisms. They provide financial support for green projects through innovative financing instruments such as green bonds. Risk assessment and management practices enable them to identify and mitigate climaterelated risks, including stranded assets and transition risks. Financial institutions engage in policy dialogues, advocating for robust carbon pricing policies and contributing to their development. They integrate sustainability considerations into investment strategies, promoting green finance and supporting the transition to a low-carbon economy. While carbon pricing introduces financial risks, proactive measures such as proper asset valuation and stress testing can help manage them effectively. Carbon pricing also presents financial opportunities, stimulating investment in green sectors, technological innovation, and the development of new business models. By aligning financial markets with carbon pricing objectives, financial institutions can drive sustainable finance and contribute to global climate goals. This research provides valuable insights into the multifaceted relationship between carbon pricing, financial markets, financial institutions, and the associated risks and opportunities.