Project – Environmental, Social and Governance (ESG) / Sustainability Reporting Compliance in Nigerian Listed Companies

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Environmental, Social and Governance (ESG) reporting, also known as sustainability reporting, has become an integral part of modern corporate disclosure practices. It provides stakeholders with non-financial information on how organizations manage environmental impact, social responsibilities, and governance structures. Globally, investors and regulators now demand ESG-related disclosures as part of comprehensive corporate reporting frameworks (IFRS Foundation, 2025).

In Nigeria, the push toward sustainability reporting has gained significant momentum. The Nigerian government and regulatory agencies, such as the Financial Reporting Council of Nigeria (FRCN), have developed a roadmap for the phased adoption of the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards, known as IFRS S1 and S2 (Financial Reporting Council of Nigeria [FRCN], 2024). This roadmap aims to ensure that Nigerian companies align with global best practices in climate-related and sustainability disclosures within a four-year transitional period (Reuters, 2024).

Before this initiative, sustainability reporting was largely voluntary. The Nigerian Exchange Group (NGX) issued Sustainability Disclosure Guidelines to guide listed firms in preparing ESG reports, while the Securities and Exchange Commission (SEC) and Central Bank of Nigeria (CBN) encouraged sustainable finance principles for regulated entities (NGX, 2020). However, despite these frameworks, compliance levels and reporting quality among listed firms remained inconsistent (ResearchGate, 2024).

Sustainability reporting can influence corporate reputation, access to finance, and investor confidence by improving transparency and reducing information asymmetry (IFRS Foundation, 2025). Yet, challenges persist — including data limitations, lack of technical capacity, and weak enforcement mechanisms (FRCN, 2024). These issues highlight the need for a systematic evaluation of ESG reporting compliance and quality among Nigerian listed companies.

1.2 Statement of the Problem

Despite the growing global recognition of ESG reporting, many Nigerian listed firms continue to show low levels of compliance and poor-quality disclosures. Although the NGX and FRCN have provided frameworks for voluntary and mandatory reporting, many companies still omit critical environmental and governance data (NGX, 2020; FRCN, 2024). Weak institutional enforcement, inadequate awareness, and limited professional expertise have also hindered compliance (ResearchGate, 2024).

As Nigeria transitions from voluntary guidelines to mandatory sustainability reporting aligned with IFRS S1 and S2, important empirical questions arise: To what extent are listed companies prepared for full ESG compliance? What factors influence reporting quality? And how effective are corporate governance mechanisms in promoting compliance? Addressing these questions is crucial for policymakers, investors, and practitioners concerned with sustainable business accountability.

1.3 Research Objectives

1.3.1 General Objective

To evaluate the compliance of Nigerian listed companies with ESG/sustainability reporting requirements and identify factors that influence the quality of sustainability disclosures.

1.3.2 Specific Objectives

1. To assess the extent of ESG/sustainability disclosure among firms listed on the Nigerian Exchange Group (NGX).

2. To evaluate the quality of sustainability disclosures with reference to IFRS/ISSB principles.

3. To examine the association between firm characteristics (size, profitability, industry) and the extent/quality of ESG disclosure.

4. To assess the impact of corporate governance variables (board composition, independence, and audit committee effectiveness) on sustainability reporting.

5. To identify challenges and institutional barriers affecting full compliance with ESG disclosure in Nigeria.

1.4 Research Questions

1. What is the current extent of ESG/sustainability disclosure among listed firms on the NGX?

2. How does the quality of sustainability reporting by Nigerian listed firms align with IFRS/ISSB disclosure principles?

3. Which firm-level characteristics are associated with the extent and quality of sustainability disclosures?

4. How do corporate governance characteristics influence sustainability reporting quality?

5. What are the key challenges affecting firms’ ability to comply with sustainability reporting standards?

1.5 Research Hypotheses

H₀₁: There is no significant relationship between firm size and the quality of ESG/sustainability disclosure among listed companies in Nigeria.
H₁₁: There is a significant positive relationship between firm size and the quality of ESG/sustainability disclosure.

H₀₂: There is no significant relationship between board independence and the quality of sustainability reporting.
H₁₂: Greater board independence is associated with higher quality sustainability reporting.

H₀₃: Profitability has no significant effect on firms’ extent of ESG disclosure.
H₁₃: Profitability positively influences the extent of ESG disclosure.

1.6 Significance of the Study

This study is significant for various stakeholders.

For policy makers, the findings will provide empirical evidence on compliance levels and inform the design of more effective enforcement strategies for the implementation of the IFRS sustainability standards (FRCN, 2024).

For corporate managers, it will identify organizational and governance factors that enhance reporting compliance and quality, guiding internal capacity-building initiatives (NGX, 2020).

For investors, understanding how ESG disclosure affects corporate performance and transparency will aid in decision-making and risk assessment (IFRS Foundation, 2025).

Finally, for academia, this study contributes to the growing body of literature on sustainability reporting in emerging markets, especially in Africa, by offering new empirical insights into Nigeria’s transition from voluntary to mandatory ESG disclosure (ResearchGate, 2024).

1.7 Scope and Delimitation of the Study

The study focuses on companies listed on the Nigerian Exchange Group (NGX), covering both financial and non-financial firms between 2018 and 2024. The analysis will assess both the extent and quality of sustainability disclosures based on the IFRS S1/S2 reporting principles. The study relies primarily on secondary data obtained from annual and sustainability reports, complemented by possible interviews or questionnaires to capture reporting challenges.

Limitations may include incomplete or inconsistent disclosure data, differences in industry-specific reporting practices, and evolving regulatory guidelines during the research period (FRCN, 2024; Reuters, 2024).

1.8 Operational Definitions of Terms

• Environmental, Social, and Governance (ESG): A framework evaluating an organization’s performance in environmental stewardship, social responsibility, and governance practices.

• Sustainability Reporting: The systematic disclosure of non-financial information relating to a company’s ESG performance and strategies.

• IFRS S1 and S2: International sustainability-related disclosure standards developed by the International Sustainability Standards Board (ISSB) to improve transparency in corporate sustainability and climate-related disclosures (IFRS Foundation, 2025).

• Reporting Quality: The completeness, comparability, and reliability of disclosed information in line with recognized reporting standards.

• Listed Companies: Firms whose shares are publicly traded on the Nigerian Exchange Group (NGX).

1.9 Organization of the Study

This study is divided into five chapters. Chapter One introduces the background, problem, objectives, research questions, and significance. Chapter Two reviews theoretical and empirical literature. Chapter Three describes the research methodology. Chapter Four presents and analyzes data. Chapter Five concludes with key findings, implications, and recommendations.

Project – Environmental, Social and Governance (ESG) / Sustainability Reporting Compliance in Nigerian Listed Companies