Islamic climate bond for electric vehicle and renewable energy: religion as an open innovation for climate action

Purpose This study aims to investigates Islamic green financing’s (IGF) contribution to elevating renewable energy (REN) and vehicle electrification to address Saudi Arabia’s energy dependence on fossil energy and the depletion of the world’s largest carbon sinks in Indonesia and Malaysia. Design/methodology/approach This study used the system generalized method of moments to analyze the explanatory variables of the environmental performance in Saudi Arabia, Malaysia and Indonesia from 2019 to 2023. Findings Green financing positively impacts greenhouse gas reduction efforts, and both REN and electric vehicles exhibit the expected mediation effects. Practical implications In line with the open innovation emphasis on joint innovative solutions, IGF innovates financing solutions for electric vehicles and REN industries through hybrid contracts that recalibrate risk sharing with asset-backed financing. Partnership-leasing contract enables investors and entrepreneurs to share ownership and lease assets that provide flexible capital without upfront full payment to reduce financial pressure and distribute risks. Social implications Equity, justice and environmental stewardship are integral principles of the profit-risk sharing mechanism in Islamic financing for REN and electric vehicles that reduce energy poverty and social inequality. Therefore, IGF offers an alternative ethical framework to impact investors and foster global collaboration between Islamic and non-Islamic societies by promoting environmental responsibility across diverse cultural contexts and financial systems to mobilize larger pools of capital for sustainable development goals in clean energy. Originality/value The study advances the natural resource-based view’s emphasis on stewardship by advocating the vertical stewardship (Khalifah) embedded in IGF. In addition, this study contributes to the theory building of the open innovation view (OIV) by incorporating market dynamics overlooked by the OIV to understand the influencing factors for product, organizational and market innovation in REN and electric vehicles. While most studies suffer from contextual gaps due to organization-level observation, this study examines the open innovation at the country level in the top three biggest Islamic economies.