The Implementation of Mandatory ESG Disclosures for Nigerian Companies: Challenges and Opportunities

Abstract

The implementation of mandatory ESG disclosures presents a critical regulatory shift for corporations globally, including Nigeria. This article argues that despite significant structural and regulatory challenges, Nigeria stands to gain substantial opportunities through effective adoption.

To support this position, this article first examines Nigeria’s evolving ESG regulatory landscape and identifies key implementation barriers. It then evaluates the tangible business opportunities arising from ESG compliance. Finally, it proposes actionable recommendations to facilitate Nigeria’s transition toward mandatory reporting frameworks.

Introduction

Environmental, Social, and Governance (ESG) disclosures refer to a reporting framework that goes beyond financial metrics to assess a company’s environmental, social, and governance practices. These disclosures aim to enhance transparency, mitigate risks, and empower stakeholders, investors, and the public to make informed decisions Globally, ESG criteria have evolved from voluntary guidelines to mandatory requirements, and Nigeria is aligning with this trend. Investors and stakeholders now assess a company’s long-term value by measuring its contribution to promoting sustainability practices over short-term profits.^[1] This shift is driven by regulatory frameworks that are steadily reshaping corporate accountability.

Presently, the Nigerian government has announced plans to mandate ESG disclosures in financial reporting starting in 2028, with penalties for non-compliance.^[2] This policy is set to give Nigerian companies a competitive advantage in the international market and combat greenwashing by encouraging companies to integrate sustainability practices into their operations.^[3] However, the success of this policy hinges on the country’s dedication to addressing implementation challenges.

This article explores Nigeria’s ESG landscape and the challenges and opportunities that arise from implementing mandatory ESG disclosures. It then concludes with actionable steps for effective adoption, balancing regulatory rigor with business realities.

An Overview of the Nigerian ESG Landscape

Nigeria’s focus on ESG considerations in corporate activities is fairly recent, however, it is slowly evolving towards mandatory compliance. The Nigerian ESG landscape can be subsumed under four key regulations: Nigerian Exchange Group (NGX) Sustainability Disclosure Guidelines (SDG) 2018,^[4] Climate Change Act 2021,^[5] the Nigerian Sustainable Banking Principles (NSBP) 2012,^[6] and Sustainability Reporting in Nigeria by Adoption Readiness Working Group (ARWG).^[7] These regulations set standards and recommend international best practices for companies to follow when adopting ESG initiatives and conveying their sustainability performance.

For instance, the Climate Change Act requires private entities with fifty or more employees to implement measures to meet annual carbon reduction targets,^[8] appoint a Climate Change or Environmental Sustainability Officer to oversee climate efforts, and submit yearly progress reports on their climate change mitigation and adaptation strategies.^[9] Furthermore, in 2023, the Financial Reporting Council of Nigeria (FRCN), the International Sustainability Standards Board (ISSB), and NGX Regulation Limited (NGX RegCo) launched the first two International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards (IFRS S1 and IFRS S2).^[10] Additionally, the FRCN created the Adoption Readiness Working Group (ARWG) for the implementation of the ISSB standards in Nigeria.

This AWRG proposed a four-phased implementation plan, which commenced on 1 January 2024.^[11] As a result, Nigeria became the first African country to adopt the IFRS S1 and S2 sustainability disclosures and one of the first globally.

In practice, most ESG reporting guidelines in Nigeria are voluntary. However, the Climate Change Act and NSBP impose mandatory sector-specific obligations.

Challenges in Implementing Mandatory ESG Disclosures

Implementing mandatory ESG disclosures in Nigeria faces significant hurdles. This stems from the following factors:

Lack of Awareness

A fundamental barrier is the lack of awareness of the importance of ESG reporting and its benefits among many Nigerian companies, particularly micro, small, and medium enterprises (MSMEs).^[12] For companies that are aware, they often have a limited understanding of ESG concepts and regulatory requirements. This knowledge gap hinders proactive adoption and effective implementation.

Lack of a Uniform ESG Reporting Standard

As in many countries, Nigeria lacks a single, uniform ESG reporting framework. This absence makes it difficult to hold companies to a specific standard of compliance. While the Securities and Exchange Commission (SEC) has issued Sustainability Reporting Guidelines,^[13] these remain primarily voluntary. Consequently, Nigerian companies must navigate several reporting frameworks like the Global Reporting Initiative (GRI) and Task Force on Climate-Related Financial Disclosures (TCFD). Although these frameworks are robust, their differing metrics and standards  often lead to inconsistencies^[14] As a result, many organisations struggle to gather accurate and comprehensive data for their ESG reports.^[15] These inconsistencies also heighten the risk of “greenwashing,” where companies exaggerate their ESG efforts to appear more sustainable than they are.^[16]

Inability to Keep Up With Evolving Regulations

ESG reporting has quickly captured significant attention from investors and stakeholders. While this presents endless opportunities for Nigeria’s Foreign Direct Investment (FDI), it has also led to constantly evolving reporting standards due to increased stakeholder demands. As a result, companies are trapped in a constant struggle to stay informed about regulatory changes. This process requires substantial costs, resources, and expertise, which imposes a greater burden on companies.^[17] 

Weak Enforcement Mechanisms

Despite the existence of ESG policies and regulations in Nigeria, enforcement remains an issue. This lack of stringent oversight leads many companies to perceive ESG reporting as a non-mandatory burden rather than a compliance necessity. Consequently, businesses often neglect disclosures, knowing they will face little to no penalties for non-compliance.^[18]

Opportunities Arising from ESG Disclosures

A careful implementation of mandatory ESG disclosures is sure to open companies to a world of endless opportunities. These include:

Consumer Preference

ESG initiatives can enhance a company’s appeal to consumers, making its products more desirable. Research by McKinsey shows consumers expressing their willingness to pay more for sustainable or eco-friendly alternatives as long as they meet the same performance standards as conventional options.^[19] While actual purchasing behavior rarely reflects these stated preferences, real-world examples demonstrate the commercial benefits of ESG-aligned initiatives. For example, when Unilever developed Sunlight, a brand of dishwashing liquid that used much less water than its other brands, sales of Sunlight and Unilever’s other water-saving products grew by 20%.^[20]

Mutual Value for Stakeholders and Companies

Companies with strong ESG performance are more likely to attract the trust of stakeholders. Additionally, ESG reporting keeps companies on their toes and compels them to maintain rigorous sustainability standards. As a result, organisations develop ESG-conscious operations that enhance their credibility, while stakeholders gain confidence in the company’s long-term viability and value creation.^[21]

Improved Risk Management and Competitiveness

ESG disclosures help to identify and address risks related to environmental, social, and governance issues.^[22] Consequently, companies that proactively manage these risks often enjoy improved financial stability and reduced capital costs. Studies have also shown that the risk management benefits of effective ESG strategies could increase operating profits by up to 60%.^[23]Additionally, ESG reporting helps Nigerian companies maintain a competitive advantage in international markets and expand into new industries.

Reputational Benefits

Adhering to ESG reporting standards helps to improve a company’s reputation, as it shows a concern for pressing global issues. Additionally, ESG reporting attests to a company’s risk management capacity, making it easier to attract and retain customers, investors, and partners.^[24]

Actionable Steps Towards Mandatory ESG Disclosures

For Nigeria to effectively implement mandatory ESG reporting, certain steps need to be considered:

Establishment of a Uniform ESG Regulatory Standard

The Federal Government should consider the option of collaborating with institutions such as NGX and CBN to establish uniform and enforceable reporting regulations for all sectors.^[25] These regulations should be established in line with global best practices and standards, with penalties attached for defiant companies.^[26] Where the regulation is voluntary in nature, the “apply or explain” system should be implemented. 

Capacity Building and Training Sessions

Employees responsible for preparing and updating ESG disclosures should be educated on the importance of ensuring that ESG statements are consistent with the company’s business description.^[27] Additionally, there should be training sessions on the use of technology to measure and track ESG performance efficiently.^[28]

Incentives for Compliance

The government should introduce tax incentives for ESG-compliant businesses to encourage more companies to adopt reporting standards.^[29] Furthermore, ESG reporting should be established as a mandatory requirement for accessing government grants, loans, and other financial facilities.^[30]

Conclusion

Nigeria’s move towards mandatory ESG disclosures by 2028 presents a pivotal opportunity to enhance corporate accountability and global competitiveness. While significant challenges, such as weak enforcement mechanisms and awareness gaps, demand urgent attention, the potential benefits for consumer trust and risk management are substantial.

The success of this initiative depends on implementing actionable steps. These include establishing a unified regulatory framework, investing in sector-wide capacity building, and incentivizing compliance through fiscal mechanisms. By balancing regulatory rigour with practical support, Nigeria can transform ESG from a compliance burden into a strategic advantage. This will also position Nigerian companies as leaders in sustainable investment and transparent governance within Africa and beyond.

Reference(S):

^[1] B Hassani and Y Bahini, ‘The Relationship Between ESG Disclosure and Economic Growth: A Critical Review’ (2022) 4(2) Journal of Asian Finance, Economics and Business 40.

^[2] Isaac Anyaogu, ‘Nigeria Gives Businesses Four Years to Adopt Eco-Friendly Reporting Standards’ (Reuters, 2024) available at <https://www.reuters.com/world/africa/nigeria-gives-businesses-four-years-adopt-eco-friendly-reporting-standards-2024-03-22/> accessed 27 May 2025

^[3] Isaac Anyaogu, (n 2)

^[4] Nigerian Exchange Group, ‘Sustainability Disclosure Guidelines’ (2018) available at <https://ngxgroup.com/ngx-download/sustainability-disclosure-guidelines/> accessed 26 May 2025

^[5] Climate Change Act (2021) available at <https://faolex.fao.org/docs/pdf/NIG208055.pdf> accessed 26 May 2025

^[6] Central Bank of Nigeria, ‘Sustainable Banking Principles’ (2012) available at <https://www.cbn.gov.ng/out/2012/ccd/circular-nsbp.pdf> accessed 26 May 2025

^[7] Adoption Readiness Working Group (ARWG) for Sustainability Reporting in Nigeria, ‘Roadmap Report for Adoption of IFRS Sustainability Disclosure Standards in Nigeria’ (March 2024) available at <https://frcnigeria.gov.ng/wp-content/uploads/2024/07/FINAL-COPY-OF-SUSTAINABILITY-ROADMAP1.pdf> accessed 26 May 2025

^[8] The Climate Change Act, section 24(1)(a)

^[9] The Climate Change Act, section 24(1)(b)

^[10] This Day Live, ‘Society for Corporate Governance Conference Places Environmental Rights on Front Burner’ (10 October 2023) available at <https://www.thisdaylive.com/2023/10/10/society-for-corporate-governance-conference-places-environmental-rights-on-front-burner/> accessed 26 May 2025

^[11] James Emejo, ‘Sustainability Reporting Now Key Compliance Issue for Banks, Others, Says Olowo’ (11 July 2024) available at <https://www.thisdaylive.com/index.php/2024/07/11/sustainability-reporting-now-key-compliance-issue-for-banks-others-says-olowo/> accessed 27 May 2025

^[12] Akindele Oluwadara, ‘ESG Reporting in Nigeria: Challenges and Opportunities’ (21September 2023) available at <https://www.linkedin.com/pulse/esg-reporting-nigeria-challenges-opportunities-akindele-oluwadara/> accessed 27 May 2025

^[13] Securities and Exchange Commission, ‘Guidelines on Sustainable Financial Principles for the Nigerian Capital Market’ (2021) available at <https://sec.gov.ng/wp-content/uploads/2021/12/SEC-Guidelines-on-Sustainable-Financial-Principles-for-the-Capital-Market_Final.pdf> accessed 27 May 2025

^[14] EcoActive, ‘The 5 Main Challenges of ESG reporting and Best Practices’ (25 February 2025) avaialble at <https://ecoactivetech.com/the-5-main-challenges-of-esg-reporting-and-best-practices/> accessed 27 May 2025

^[15] Apiday, ‘Understanding ESG Disclosure: A Guide for Sustainability Reporting’ (15 October 2024) available at <https://www.apiday.com/blog-posts/understanding-esg-disclosure-a-guide-for-effective-reporting> accessed 27 May 2025

^[16]  Apiday, (n 15)

^[17] Apiday, (n 15)

^[18] CSR in Action, ‘Is Nigeria Ready for Mandatory Sustainability Reporting?’ (26 February 2025) available at <https://www.csr-in-action.com/is-nigeria-ready-for-mandatory-sustainability-reporting/> accessed 29 May 2025

^[19] Mehdi Miremadi, Christopher Musso, and Ulrich Weihe, ‘How Much Will Consumers Pay to Go Green?’ available at <https://www.mckinsey.com/capabilities/sustainability/our-insights/how-much-will-consumers-pay-to-go-green> accessed 28 May 2025

^[20] Witold Henisz, Tim Koller, and Robin Nuttall, ‘Five Ways That ESG Creates Value’ (14 November 2019) available at <https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/five-ways-that-esg-creates-value> accessed 28 May 2025

^[21] Bolanle Titilayo Adejugbe, ‘Navigating the Interplay: ESG, Sustainability, and Sustainability Reporting – An Examination of Regulatory Risks and Opportunities’ (2024) 18(2) AGORA International Journal of Juridical Sciences 178 available at <https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/agoraijjs2024&section=56> accessed 28 May 2025

^[22] Apiday, (n 15)

^[23] Achim Berg, Nils Schlag, and Martin Stuchtey, ‘Getting the Most Out of Your Sustainability Program’ (1 August 2015) available at <https://www.mckinsey.com/industries/retail/our-insights/getting-the-most-out-of-your-sustainability-program> accessed 28 May 2025

^[24] Akindele Oluwadara, (n 12)

^[25] CSR in Action, (n 18)

^[26] Bolanle Titilayo Adejugbe, (n 21)

^[27] Mark Bergman, Ariel Deckelbaum and Brad Karp, Introduction to ESG (Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1 August 2020) <https://corpgov.law.harvard.edu/2020/08/01/introduction-to-esg/> accessed 29 May 2025

^[28] CSR in Action, (n 18)

^[29]  CSR in Action, (n 18)

^[30]  Bolanle Titilayo Adejugbe, (n 21)