Financial Institution Efficiency, Renewable Energy, Energy Use and Sustainable Development in Nigeria

ABSTRACT

This study examines whether financial institution efficiency promotes environmental sustainability in Nigeria, while accounting for the mediating roles of renewable energy consumption (REA), income and energy use over the period 1990Q1–2023Q4. Existing studies on the finance–environment nexus largely emphasise broad financial development indicators and conventional average‐based estimators, with limited attention to financial institution efficiency and the possibility that its environmental effects vary across emission states and time horizons. To address this gap, this study employs wavelet quantile regression, wavelet quantile correlation and multivariate wavelet quantile regression. Preliminary diagnostics reveal strong evidence of non‐normality, asymmetry and nonlinearity, thereby supporting the use of quantile‐ and frequency‐based techniques. Results show that financial institution efficiency generally reduces CO ₂ emissions, particularly in the medium and long run, suggesting that more efficient reforms can support environmental sustainability. REA is also found to lower emissions, whereas income and energy use increase environmental degradation. The robustness analysis confirms the stability of these relationships. At the same time, the mechanism results indicate that the environmental benefits of financial efficiency are stronger when financial resources support renewable energy, but weaker when they stimulate income‐driven, energy‐intensive activities. By distinguishing financial institution efficiency from broader financial development measures and by uncovering how its impact varies across quantiles and wavelet scales, the study provides deeper evidence of the conditional and transmission‐based nature of the finance–environment nexus in an emerging‐economy context. Findings imply that financial efficiency can improve environmental quality only when aligned with cleaner energy transition and lower‐carbon development pathways.