The response of vegetation canopy conductance (gc) to changes in moisture availability (gamma gcm ${\gamma }_{gc}<^>{m}$) is a major source of uncertainty in climate projections. While vegetation typically reduces stomatal conductance during drought, accurately modeling how and to what degree stomata respond to changes in moisture availability at global scales is particularly challenging, because no global scale gc observations exist. Here, we leverage a collection of satellite, reanalysis and station-based near-surface air and surface temperature estimates, which are physically and statistically linked to gamma gcm ${\gamma }_{gc}<^>{m}$ due to the local cooling effect of gc through transpiration, to develop a novel emergent constraint of gamma gcm ${\gamma }_{gc}<^>{m}$ in an ensemble of Earth System Models (ESMs). We find that ESMs systematically underestimate gamma gcm ${\gamma }_{gc}<^>{m}$ by similar to 33%, particularly in grasslands, croplands, and savannas in semi-arid and bordering regions of the Central United States, Central Europe, Southeastern South America, Southern Africa, Eastern Australia, and parts of East Asia. We show that this underestimation occurs because ESMs inadequately reduce gc when soil moisture decreases. As gc controls carbon, water and energy fluxes, the misrepresentation of modeled gamma gcm ${\gamma }_{gc}<^>{m}$ contributes to biases in ESM projections of gross primary production, transpiration, and temperature during droughts. Our results suggest that the severity and duration of droughts may be misrepresented in ESMs due to the impact of sustained gc on both soil moisture dynamics and the biosphere-atmosphere feedbacks that affect local temperatures and regional weather patterns. During photosynthesis, plants open their stomata to take in carbon dioxide and inevitably, lose water through transpiration. As a result, when soil moisture is low, plants reduce their stomatal apertures to conserve water, simultaneously reducing their carbon dioxide uptake. It is critical for Earth System Models (ESMs) to incorporate accurate vegetation responses to moisture availability to make accurate future climate projections. Here, we show that these ESMs are systematically underestimating the sensitivity of vegetation to moisture availability, and that this underestimation is leading to incorrect climate projections of carbon, water, and energy fluxes during droughts. Earth System Models (ESMs) underestimate the sensitivity of canopy conductance to changes in moisture availabilityThe underestimation is greatest in semi-arid and bordering regions with temperatures between 5 and 25 degrees C and leaf area index over 1This misrepresentation leads to errors in ESM projections of carbon, water, and energy fluxes during drought