The relationship between Islamic financial development and renewable energy consumption: evidence from OIC countries

Purpose This study aims to examine the relationship between Islamic financial development (IFD) and renewable energy consumption (REC) within the framework of the financial environmental kuznets curve (FEKC) hypothesis for selected Organization of Islamic Cooperation (OIC) member countries. This study also aims to determine whether the impact of IFD on REC follows a nonlinear pattern and whether threshold effects exist. Design/methodology/approach Using annual data for seven OIC countries (2013–2024), the study uses Islamic banking total assets (ITA) and Islamic banking financing (IBF) as proxies for IFD. The empirical approach combines panel estimations, nonlinear models and panel quantile regression. Model selection relies on standard tests, with Hadri Lagrange Multiplier and multicollinearity checks. Given few clusters, inference uses HC1–Arellano robust errors and Wild Cluster Bootstrap. Findings The findings reveal the existence of a statistically significant and nonlinear relationship between IFD and REC. Across all model specifications, including robust panel estimations (ITA and IBF), the quadratic terms are found to be significant, thereby confirming a U-shaped relationship. The fact that the estimated turning points lie below the range of observations indicates that all OIC countries in the sample are positioned along the upward-sloping segment of the curve. Furthermore, panel quantile regression results demonstrate that this effect is statistically significant only in countries with higher levels of REC (τ = 0.75), thereby supporting the FEKC hypothesis at the upper tail of the distribution. The robustness of these findings is further validated through the application of Wild Bootstrap and HC1 corrections. Research limitations/implications This study is subject to limitations in terms of generalizability due to the small number of countries (n = 7) and the short time dimension (T = 12). Future research could extend these findings by using a broader sample of OIC countries. From a policy perspective, the results indicate that Islamic finance can effectively support the transition to renewable energy only after reaching a sufficient threshold of financial deepening. Therefore, in countries with low levels of REC, the development of green sukuk and Islamic climate finance mechanisms may be considered a priority policy instrument. Originality/value To the best of the authors’ knowledge, this study is among the first to examine the relationship between IFD and REC within a nonlinear framework using panel quantile regression. It offers an original contribution by simultaneously testing the FEKC hypothesis for OIC countries through both total ITA and IBF indicators. The application of Wild Bootstrap and HC1 corrections strengthens methodological rigor, while the distributional approach provides novel insights for policy design across heterogeneous country structures.