Project – Sustainability Reporting and Investment Decision-Making among Institutional Investors: A Study of Listed Companies on the Nigerian Exchange

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Sustainability reporting has become an increasingly important component of corporate reporting as investors, regulators, customers, employees and other stakeholders seek information about how organisations manage their economic, environmental and social responsibilities. Traditional financial statements provide important information about profitability, assets, liabilities, cash flows and financial position, but they may not fully communicate the non-financial risks and opportunities that can affect a company’s long-term prospects. Sustainability reporting addresses this information gap by providing disclosures concerning matters such as environmental impacts, employee and community relations, corporate governance, resource use and other sustainability-related issues. The International Sustainability Standards Board’s IFRS S1 specifically requires entities to disclose sustainability-related risks and opportunities that could reasonably be expected to affect their cash flows, access to finance or cost of capital over the short, medium or long term, thereby connecting sustainability information with the resource-allocation decisions of investors (IFRS Foundation, 2023).

The relevance of sustainability reporting has become particularly significant in capital markets because investors increasingly require information that assists them in assessing not only current financial performance but also the risks and opportunities that may influence future corporate performance. Institutional investors, which include pension funds, insurance companies, mutual funds, investment companies and other large investment organisations, generally manage substantial pools of capital and may hold significant positions in listed companies. A global survey of 582 institutional investors by Eccles, Kastrapeli and Potter (2018) examined how institutional investors integrate environmental, social and governance (ESG) factors into investment decision-making, demonstrating the growing relevance of ESG information within professional investment processes. Similarly, a 2024 survey of 47 major institutional investors and asset owners by Stanford’s Corporate Governance Research Initiative found that ESG factors are considered by institutional investors in their decision-making, with governance and risk-reduction considerations receiving particular attention (Larcker, Lee, Seru, & Tayan, 2024). These developments indicate that sustainability information may form part of the broader information set used by institutional investors when evaluating investment opportunities.

The quality, relevance and comparability of sustainability information are important because investors cannot effectively incorporate information into investment decisions if the information is incomplete, inconsistent or difficult to compare across companies. The Global Reporting Initiative (GRI) has developed internationally recognised sustainability reporting standards intended to help organisations report their impacts on the economy, environment and people in a structured manner (Global Reporting Initiative [GRI], 2021). In addition, research on ESG data has identified concerns relating to materiality, accuracy and reliability as potential barriers to institutional investors’ use of sustainability information (Jonsdottir, Sigurjonsson, Jóhannsdóttir, & Wendt, 2022). The issue is therefore not simply whether listed companies publish sustainability information, but whether the information is sufficiently relevant and credible to assist investors in assessing corporate risks, opportunities and long-term prospects. This distinction is particularly important for institutional investors because their investment decisions may involve substantial amounts of capital and require systematic assessment of financial and non-financial information.

In Nigeria, sustainability reporting has developed within an evolving regulatory and capital-market environment. The Nigerian Exchange Group (NGX) introduced its Sustainability Disclosure Guidelines to encourage listed companies to integrate sustainability considerations into business activities and annual disclosures, while also facilitating engagement between companies and capital-market stakeholders on environmental, social and governance issues (Nigerian Exchange Group [NGX], 2020). More recently, Nigeria has moved toward the adoption of the International Sustainability Standards Board’s sustainability disclosure standards. The Financial Reporting Council of Nigeria’s sustainability reporting framework identifies IFRS S1 and IFRS S2 as the standards being adopted for sustainability-related financial disclosures, with public-interest entities, including listed entities, within the scope of the Nigerian framework (Financial Reporting Council of Nigeria [FRCN], 2025). NGX also reported in 2024 that some listed companies, including Access Holdings Plc, Fidelity Bank Plc, MTN Nigeria Communications Plc and Seplat Energy Plc, had adopted IFRS S1 and S2 in their 2023 financial reports (NGX RegCo, 2024).

The Nigerian empirical literature provides evidence that sustainability reporting practices among listed companies are still characterised by differences in the extent and nature of disclosure. Ibukun-Falayi, Olatunji and Falayi (2023), in an assessment of sustainability reporting practices among selected companies listed on the Nigerian Exchange, analysed annual, sustainability and governance reports over a ten-year period and found differences across economic, environmental, social and governance dimensions, with governance receiving the highest level of reporting among the dimensions examined. Similarly, the study by Ajibade, Akinlo and other researchers on sustainability accounting and reporting in Nigeria examined the drivers of sustainability reporting among the top 50 companies listed on the Nigerian Stock Exchange between 2015 and 2020 and demonstrated that sustainability reporting had become an important component of corporate disclosure in the Nigerian capital market (drivers study, 2022). These findings indicate that although sustainability reporting is increasingly present in the Nigerian corporate reporting environment, differences in disclosure practices may affect the amount and quality of sustainability information available to investors.

Institutional investors are particularly relevant to sustainability reporting because their ownership positions can provide them with incentives and opportunities to monitor corporate management and influence disclosure practices. Olorede, Adeyemi, Oladejo and Adenle (2022) examined institutional investors and sustainability reporting among listed firms in Nigeria using a sample of 50 financial and non-financial firms. Their findings indicated that domestic institutional investors had a positive influence on sustainability reporting among the firms studied, while firm size, performance and industry type also affected sustainability reporting. More recent Nigerian research by Orshi and Yusuf (2024) examined sustainability disclosure, institutional ownership and firm value among Nigerian listed companies using data from 2014 to 2021. The study reported that economic and environmental disclosures and institutional ownership significantly and positively affected firm value, while social disclosure did not have a significant effect in the model examined. These findings demonstrate the interconnectedness of sustainability disclosure, institutional ownership and corporate valuation in Nigeria, although they do not by themselves establish how institutional investors use sustainability reports when making individual investment decisions.

The relationship between sustainability reporting and investment decision-making is also supported by international evidence showing that professional investors consider ESG information in evaluating companies and allocating capital. Eccles et al. (2018) found, through their survey of institutional investors, that ESG integration had become part of investment decision-making processes among surveyed investors. More recent research by Cao, Du and others (2024) examined firm-level ESG information and active fund management and found evidence that active mutual fund managers traded on firm-level ESG information and adjusted portfolios in response to ESG-related information and investor demand. Research on institutional investors’ information needs has similarly shown that changes in sustainability-related reporting requirements can affect the information needs and decision processes of institutional investors (Jonsdottir et al., 2024). These findings provide a basis for examining whether the sustainability information disclosed by companies listed on the Nigerian Exchange is relevant to the investment decisions of institutional investors operating in the Nigerian capital market.

Against this background, the present study focuses on Sustainability Reporting and Investment Decision-Making among Institutional Investors: A Study of Listed Companies on the Nigerian Exchange. The study is important because the Nigerian capital market is experiencing an evolving sustainability-reporting environment, particularly following the NGX Sustainability Disclosure Guidelines and the country’s movement toward IFRS Sustainability Disclosure Standards (NGX, 2020; FRCN, 2025). At the same time, empirical studies have examined sustainability reporting, institutional ownership, firm value and reporting practices among Nigerian listed companies, but there remains a need to specifically examine the extent to which sustainability reporting information relates to the investment decision-making processes of institutional investors. Orshi and Yusuf (2024) focused on firm value and institutional ownership, while Olorede et al. (2022) examined the influence of institutional investors on sustainability reporting rather than the use of sustainability reporting in investors’ decisions. The present study therefore seeks to examine the extent of sustainability reporting by listed companies on the Nigerian Exchange, the factors influencing institutional investors’ consideration of sustainability information, and the relationship between sustainability reporting and institutional investment decision-making.

1.2 Statement of the Problem

The increasing importance of sustainability information in capital markets has created expectations that listed companies should provide investors with relevant information about environmental, social and governance issues that may affect corporate performance and long-term value. IFRS S1 explicitly connects sustainability-related financial disclosures with decisions about providing resources to an entity, while the NGX Sustainability Disclosure Guidelines encourage listed companies to disclose sustainability information to capital-market stakeholders (IFRS Foundation, 2023; NGX, 2020). However, the existence of reporting frameworks does not necessarily mean that sustainability information is consistently disclosed at the same level of quality, completeness or relevance by all listed companies. Nigerian evidence has identified differences in sustainability reporting across economic, environmental, social and governance dimensions, suggesting that investors may encounter varying levels of sustainability information when analysing listed companies (Ibukun-Falayi et al., 2023). The problem, therefore, concerns whether the sustainability information provided by listed companies is sufficiently developed and useful to institutional investors making investment decisions.

A second problem relates to the quality and reliability of sustainability information available to institutional investors. Investment decisions require information that is sufficiently relevant, understandable, comparable and credible to support the evaluation of investment alternatives. Research on the use of ESG information by institutional investors identifies materiality, accuracy and reliability as important concerns that can limit the usefulness of sustainability data (Jonsdottir et al., 2022). In Nigeria, the transition toward IFRS S1 and S2 and the development of national sustainability reporting guidelines indicate an attempt to improve the consistency and usefulness of sustainability-related disclosures (FRCN, 2025). Nevertheless, the transition itself creates questions concerning the extent to which listed companies have incorporated sustainability reporting into their established reporting systems and whether institutional investors can obtain comparable sustainability information across companies and sectors.

A third problem concerns the actual use of sustainability information by institutional investors in Nigeria. Institutional investors constitute an important category of capital-market participants and may have substantial ownership interests in listed companies. Evidence from Nigeria shows that domestic institutional investors are associated with sustainability reporting practices among listed companies (Olorede et al., 2022), while Orshi and Yusuf (2024) found relationships between sustainability disclosure, institutional ownership and firm value. However, evidence that institutional investors influence sustainability reporting does not necessarily establish that they use sustainability reports directly when deciding whether to acquire, retain or dispose of investments. There is therefore a need to distinguish between the influence of institutional investors on corporate sustainability reporting and the use of sustainability reporting by institutional investors in their investment decision-making processes.

A fourth problem is the limited empirical evidence directly linking sustainability reporting with investment decision-making among institutional investors in the Nigerian Exchange environment. Existing Nigerian studies have examined sustainability reporting practices, the determinants of sustainability reporting, institutional ownership and firm value, but fewer studies have directly focused on whether sustainability information influences institutional investors’ investment decisions. This gap is increasingly important as Nigeria moves toward the implementation of IFRS Sustainability Disclosure Standards and as listed companies increasingly integrate ESG information into their corporate reports (FRCN, 2025; NGX RegCo, 2024). The study therefore seeks to provide empirical evidence on whether sustainability reporting is associated with investment decision-making among institutional investors in respect of companies listed on the Nigerian Exchange.

1.3 Purpose of the Study

The general purpose of this study is to examine sustainability reporting and investment decision-making among institutional investors in relation to companies listed on the Nigerian Exchange.

Specifically, the study seeks to:

1. examine the extent of sustainability reporting among companies listed on the Nigerian Exchange;
2. assess the extent to which institutional investors consider environmental, social and governance information in their investment decisions;
3. identify the factors influencing institutional investors’ use of sustainability reports when evaluating listed companies; and
4. determine the relationship between sustainability reporting and investment decision-making among institutional investors in the Nigerian Exchange.

1.4 Research Questions

The study will be guided by the following research questions:

1. What is the extent of sustainability reporting among companies listed on the Nigerian Exchange?
2. To what extent do institutional investors consider environmental, social and governance information in their investment decisions?
3. What factors influence institutional investors’ use of sustainability reports when evaluating listed companies?
4. What relationship exists between sustainability reporting and investment decision-making among institutional investors in the Nigerian Exchange?

1.5 Research Hypothesis

The following null hypothesis will be tested at the 0.05 level of significance:

H₀: There is no significant relationship between sustainability reporting and investment decision-making among institutional investors in the Nigerian Exchange.

1.6 Significance of the Study

The study will be significant to institutional investors because it will provide information concerning the availability and relevance of sustainability disclosures when evaluating listed companies. The findings may assist institutional investors in understanding the extent to which environmental, social and governance information is incorporated into investment analysis.

The study will also be useful to listed companies on the Nigerian Exchange. Evidence concerning the information requirements of institutional investors may assist corporate managers in understanding the aspects of sustainability reporting that are relevant to capital-market participants. This is particularly pertinent given the NGX’s sustainability disclosure framework and Nigeria’s movement toward IFRS Sustainability Disclosure Standards (NGX, 2020; FRCN, 2025).

The study will be relevant to the Nigerian Exchange Group and other capital-market regulators, including the Financial Reporting Council of Nigeria and the Securities and Exchange Commission. The findings may provide empirical evidence that can inform continuing efforts to improve the quality, comparability and usefulness of sustainability-related corporate disclosures.

The study will also benefit accounting professionals, auditors and sustainability-reporting practitioners. As sustainability reporting becomes increasingly connected to financial reporting and capital-market information, evidence about investors’ information needs may assist professionals in developing reporting practices that better communicate material sustainability-related risks and opportunities.

The study will be useful to academic researchers and students in accounting, finance, investment management, corporate governance and sustainability studies. It will contribute Nigerian evidence to the growing literature concerning the relationship between non-financial corporate disclosure and investment decision-making.

Finally, the study will contribute to the broader understanding of sustainable finance in Nigeria by examining sustainability reporting from the perspective of capital allocation. This is important because IFRS S1 was designed specifically to provide sustainability-related information useful to users of general-purpose financial reports when making decisions about providing resources to an entity (IFRS Foundation, 2023).

1.7 Scope of the Study

The study focuses on Sustainability Reporting and Investment Decision-Making among Institutional Investors, using companies listed on the Nigerian Exchange (NGX) as the study context.

Content Scope

The study covers:

• the extent of sustainability reporting;
• environmental disclosure;
• social disclosure;
• governance disclosure;
• economic sustainability information;
• institutional investors’ consideration of sustainability information;
• factors influencing the use of sustainability reports; and
• the relationship between sustainability reporting and investment decision-making.

Geographical Scope

The study is situated within the Nigerian capital market and focuses on companies listed on the Nigerian Exchange and institutional investors participating in the Nigerian investment environment.

Unit of Analysis

The study will focus on institutional investors and relevant investment professionals with knowledge of investment evaluation and decision-making concerning companies listed on the Nigerian Exchange.

1.8 Operational Definition of Terms

Sustainability Reporting: The process through which an organisation communicates information about its economic, environmental, social and governance impacts, risks, opportunities and performance to stakeholders.

Sustainability Disclosure: Specific information concerning an organisation’s sustainability-related activities, risks, opportunities and performance that is communicated through annual reports, sustainability reports, integrated reports or other corporate disclosures.

Investment Decision-Making: The process through which an investor evaluates available information and decides whether to buy, hold, sell or otherwise allocate investment resources to a particular security or company.

Institutional Investors: Organisations that invest funds on behalf of individuals, beneficiaries or other entities. Examples include pension funds, insurance companies, mutual funds, investment companies and other professional investment institutions.

Environmental Disclosure: Corporate information concerning environmental matters such as emissions, energy use, waste management, resource consumption, environmental compliance and climate-related risks and opportunities.

Social Disclosure: Corporate information relating to employees, occupational health and safety, human rights, community relations, customers, diversity and other social matters.

Governance Disclosure: Information concerning corporate governance structures and practices, including board composition, board oversight, ethics, accountability, internal controls, executive remuneration and shareholder rights.

Economic Disclosure: Information concerning the economic value created and distributed by a company and other economic issues relevant to its stakeholders and long-term sustainability.

ESG: An acronym for Environmental, Social and Governance, representing three broad categories commonly used to organise information concerning corporate sustainability and responsible business practices.

Nigerian Exchange (NGX): Nigeria’s principal organised securities exchange through which listed securities are traded and capital-market participants interact.

Listed Company: A company whose securities have been admitted for trading on the Nigerian Exchange in accordance with applicable listing requirements.

Investment Information: Financial and non-financial information used by investors to evaluate a company’s prospects, risks, performance and potential investment value.

Institutional Investment Decision: An investment-related decision made by an institutional investor concerning the acquisition, retention, disposal or allocation of capital to securities of listed companies.

Project – Sustainability Reporting and Investment Decision-Making among Institutional Investors: A Study of Listed Companies on the Nigerian Exchange