ESG INTEGRATION FOR NIGERIAN COMPANIES: TOWARDS STRENGHTENED CORPORATE GOVERNANCE FRAMEWORKS
INTRODUCTION
Over the past few years, Environmental, Social, and Governance (ESG) issues have emerged as some of the most pressing topics in company boardrooms and corporate decision-making processes worldwide, including in Nigeria. Companies have adopted varying approaches to ESG, reflecting diverse priorities and regulatory environments. Environmental, Social, and Governance (ESG), is a framework used to assess an organization’s sustainability practices, considering its operational impact on the environment, social, and corporate governance tenets for companies.
What was once viewed as a compliance checklist, or an optional add-on is now becoming integral to corporate strategy and supply chain management. Companies are beginning to recognize the importance of embedding ESG principles into their core operations, leading to the creation of dedicated ESG departments and the appointment of ESG officers. This shift underscores the growing significance of ESG in shaping the future of the economy.
In this article, we explore the future of ESG in Nigerian companies, while highlighting key challenges, pathways, and opportunities, as well as the current legal and regulatory landscape supporting ESG integration.
THE CURRENT ESG LEGAL & REGULATORY FRAMEWORK IN NIGERIA
1. Securities and Exchange Commission (SEC)
In April 2021, The Nigerian Securities Exchange Commission (SEC) which regulates public companies in Nigeria and the Nigerian capital market, issued the Guidelines on Sustainable Financial Principles to promote sustainable finance within the capital market in Nigeria. These principles are geared towards the integration of ESG considerations into investment decisions and recommending annual reporting, making contributions towards reducing global warming and other environmental footprints resulting from activities of quoted companies and their stakeholders[1].
More recently, the enactment of the Investment & Securities Act, (ISA) 2025 which repealed the Investment & Securities Act 2007 has further expanded and strengthened the legal framework for ESG standards, investment considerations and compliance in the Nigerian capital market space. The ISA 2025 now provides for a more robust framework for ESG compliance in Nigeria, examples of this can be seen in Sections 82-85 of the Act which provide for a framework for monitoring and addressing systemic risk in the capital markets. The climate events and social unrest we have experienced can be seen as systemic risks; thus, these sections would enable SEC to demand risk reporting or mitigation strategies covering ESG exposures.
2. Central Bank of Nigeria (CBN)
The Central Bank has been at the forefront of ESG initiatives as early as 2012 with the CBN Sustainable Banking Principles (“the Principles”) released in the same year in a circular dated the 24th of September 2012, in furtherance to the provisions of those guiding Principles, the CBN had prepared and circulated a draft reporting template on ESG for financial institutions containing the implementation framework for the principles. These principles mandate banks and other financial institutions to assess and manage environmental and social risks in their lending and investment activities. The principles also encourage banks and other financial institutions to report on their sustainability performance and impact in a bid to address the evident gender-imbalance in boards and top-management staff[2].
3. IFRS Sustainability Disclosure Standards (IFRS S1 & S2)
The Financial Reporting Council of Nigeria (FRC) has adopted the International Financial Reporting Standards specifically IFRS S1 and S2[3], which focuses on sustainability-related and climate-related disclosures, respectively. This was done in the view that by 2028 all Public Interest Entities (PIEs) would fully adopted them, while by 2030 all Small and Medium Scale Enterprises (SMEs) would have adopted the standards.
Under these standards, companies are expected to disclose information regarding risk management, strategy, governance and climate related risk and opportunities. There is also an outline provided by the FRC on specific documentation and training requirement to ensure full compliance. These standards are currently voluntary for companies; however, it is advisable for companies to consider adoption as soon as possible before these standards becoming mandatory.
4. The Nigerian Code of Corporate Governance (NCCG) 2018
Principle 28 of the NCCG 2018 provides that
“Full and comprehensive disclosure of all matters material to investors and stakeholders, and of matters set out in this Code, ensures proper monitoring of its implementation which engenders good corporate governance practice.”
By virtue of this provision, Nigerian companies regulated under the NCCG are encouraged to make material disclosures to all stakeholders as part of proper corporate governance practice. This level of transparency promotes trust among stakeholders and investors.
5. The Petroleum Industry Act (PIA) 2021
This is a major piece of legislation reforming Nigeria’s oil and gas sector. It includes several ESG-related provisions, particularly in the areas of governance, community development, and environmental responsibility. The nature of the petroleum industry and the likely adverse effect of drilling operations on the environment puts them as leading actors in the ESG space in Nigeria. They have a “special” responsibility in making more efforts in off-setting their carbon emissions.[4]
The PIA states that oil & gas companies are required to conduct Environmental Impact Assessments (EIAs) before undertaking new projects as well as implement Environmental Management Plans (EMPs) and ensure they mitigate and monitor environmental risks[5]. The Act also includes social provisions. In Section 235 of the Act, Oil and gas companies are required to contribute 3% of their annual operating expenditure to a trust fund for the development of host communities. Likewise, Trusts are managed by community-appointed boards and are aimed at fostering social responsibility, peace, and sustainable development in these host communities[6].
POTENTIAL OPPORTUNITIES OF ESG INTEGRATION
There are multifaceted potential opportunities available to corporate organisations in Nigeria from integration of ESG. They include:
a. Access to Capital: There are new ESG-oriented funding options such as green bonds, sustainability-linked loans, and climate finance from Development Finance Institutions (DFIs) such as African Development Bank (ADB), as well as the Nigerian capital market. The criteria for such funds and capital sources are only available to ESG-oriented companies. Therefore, companies that do not have such policies and strategies in place will miss these opportunities.
b. Operational Efficiency: When companies begin to implement policies such as reducing energy use, water waste, and carbon emissions, it has been shown to reduce lowers operational costs over time[7]. With the increasing cost of fossil fuel product and the adverse effect on the environment, adoption of greener forms of energy actually helps in cost reduction and improved operational efficiency. For instance, Google has been carbon neutral since 2007, which means that for carbon emissions from its operations, it has been able to offset the same amount in clean energy commitments. This has made Google of the leading voices on ESG issues in the world as well as a reference point in good corporate governance globally.
c. Proactive Regulatory Compliance Benefits: Nigerian Companies that adopt these ESG policies such the IFRS S1/S2 and SEC sustainability principles early are better prepared for future compulsory mandates such as the 2028 or 2030 mandates. This could also avail the compliant companies incentives such as tax cuts, procurement opportunities. A company that is proactive would also enjoy regulatory clarity and ESG disclosures which will reduce the risk of sanctions, license suspension from regulators as well as overall corporate attractiveness to prospective investors.
d. Social Impact Opportunities: Companies with vibrant and well thought out ESG practices foster peace and reduce local opposition and would easily earn a good repute in the public space. In addition, investing in fair wages, implementing Diversity Equality and Inclusion (DEI) Policies, ensuring safe workplaces boosts employee retention and performance. ESG leadership builds trust with regulators, media, and civil society is essential for long-term success.
CHALLENGES FACING ESG INTEGRATION
Despite the opportunities and advantages with ESG integration there are a number of problems faced by Nigerian Companies. They include:
a. Awareness and Understanding: Nigerian companies, especially SMEs lack awareness of ESG principles and reporting requirements. There needs to be concerted efforts by sectoral regulators such to ensure that they are adequate awareness programs and knowledge sessions educating companies of ESG principles and its importance to the environment.
b. Capacity and Resources: there are very limited technical expertise, and lack of financial resources hinder effective ESG implementation and reporting. The implementation of ESG is usually capital intensive especially in the initial stages. However, the government can consider providing grants and financial support to organisations that have some level of commitment to ESG integration.
c. Data Quality and Standardization: over the years, Nigeria has had a history of inconsistent data collection and reporting practices which affect the reliability and comparability of ESG disclosures. This is because there are no adequate data and statistics available to rely on. ESG is data driven and there is a need to develop a reliable repository of data that companies can rely on.
d. Greenwashing: refers to the practice where companies mislead stakeholders, regulators and/or potential investors by presenting a false or exaggerated image of their environmental or social responsibility. This is usually done to enjoy patronage and recognition without making genuine efforts to achieve sustainability goals. Greenwashing can damage public trust in both individual companies and the broader ESG movement. If Nigerian companies are found greenwashing, it could further discourage international funding, especially from ESG-conscious investors or DFIs that demand authenticity and transparency.
CORPORATE GOVERNANCE RECOMMENDATIONS FOR ESG INTEGRATION IN NIGERIA
To align with the evolving ESG landscape and strengthen their corporate governance framework overall, Nigerian companies should consider the following actions:
a. Conduct a Gap Analysis: There is a need to assess their current standards against industry leaders on a global level within various industries and identify areas for improvement. A plan for adoption in phases should be created and should be done in phases.
b. Develop an Implementation Plan: A roadmap for integrating ESG considerations into corporate operations and reporting should be created. This roadmap should seek to address the gap identified in the gap analysis and provide a road map for bridging the gap. This plan should not become a checklist program or audit, rather a holistic and thorough plan that encompasses the entire operations of the organisation. It is also important that organisation consider having stand-alone ESG departments/units in their corporate structure and not just lumping them up with compliance as an add-on requirement. Another option is to have a dedicated ESG officer in every department of the company who would ensure that each department adheres fully to the ESG policies and initiatives in the organisation.
c. Engage Stakeholders and Build Capacity: There needs to be communication with investors, customers, regulators and other stakeholders about ESG initiatives and performance. These discussions and communications will help organisations understand what issues are the most important. It is equally important to train staff members and management on ESG principles and reposting standards.
d. Leveraging on Technology: There is a need to start the utilization of digital tools for data collection, analysis, and reporting of ESG to enhance efficiency and accuracy. With the adoption of automated services, it increases the efficiency and reduces the burdens on manpower on the companies. It also gives room for the company to focus on other pressing issues.
CONCLUSION
As ESG standards become increasingly central to global and local corporate practices, Nigerian companies stand at a pivotal moment of opportunity. By proactively integrating ESG principles into their strategies and operations, companies can unlock access to sustainable finance, enhance operational efficiency, strengthen stakeholder trust, and secure long-term competitiveness.
To crown it all, early alignment with frameworks like IFRS S1 and S2, along with adherence to national ESG legal and regulatory frameworks will position forward-looking Nigerian Companies not only for effective compliance, but overall sustainability.
