What most Nigerian firms get wrong about ESG reporting

For decades, Nigerian companies have approached corporate responsibility through a philanthropic lens. Scholarships, community projects, and infrastructure donations have long defined Corporate Social Responsibility (CSR) in Nigeria’s firm annual report.

While a company may invest in host communities and still fail to disclose how water scarcity, flooding, energy disruptions, or policies have been affecting or could affect its own operations. Many firms still treat Environmental, Social and Governance (ESG) reporting as a public relations exercise rather than as a means of highlighting material risks and allocating capital to opportunities by management or executive leadership.

Scholars have raised concerns about this issue. Organisations globally are confronting environmental shocks that directly threaten their long-term viability, Magali Delmas and Mallory Flowers, professors of strategy and management, stressed in their recent publication. Nigerian firms are not exempt, yet many disclosures still fail to reflect these realities.

The key problem is a misunderstanding of what ESG reporting is meant to achieve. Globally, the conversation has moved beyond checklists and philanthropic narratives toward double materiality. The double materiality framework evaluates both how sustainability issues affect a company’s financial performance (financial materiality) and how the company itself impacts the environment and society (impact materiality).

In Nigeria, regulators are beginning to push in this direction. The Financial Reporting Council of Nigeria now mandates the adoption of International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards, while the Nigerian Exchange Group has issued Sustainability Disclosure Guidelines.

Yet implementation remains uneven. Most Nigerian firms emphasise impact materiality, often framed in terms of positive contributions, community investments, social programmes, or environmental initiatives. What is always missing is financial materiality, which is a clear assessment of how climate risks, regulatory changes, and resource constraints affect profitability, asset values, and long-term strategy.

This imbalance creates a credibility gap. A good example can be found in Nigeria’s oil and gas sector. My visit to the Niger Delta revealed that companies operating in the region always invest in community development projects such as schools, healthcare centres, and water projects. Oil companies use these CSR initiatives as non-market strategies to get social licence, Ekhator and Yiola-Omisore’s corporate social responsibility study revealed. Yet, the same firms are highly exposed to climate and environmental risks that are rarely quantified in financial terms.

Recurring floods in the Niger Delta, for instance, disrupt logistics, damage road infrastructure, and halt farming. Despite this, few disclosures provide a clear estimate of the financial impact of such disruptions or outline scenario-based mitigation strategies. Similarly, gas flaring and emissions, long-standing issues in the oil sector, are often reported in compliance terms, but not fully integrated into financial risk assessments.

The result is a disconnect: companies report what they give, but not what they stand to lose.

This gap is not limited to the oil and gas sector. In the banking sector, lenders are increasingly exposed to climate risk through their loan books, particularly in agriculture. Yet, few Nigerian banks disclose how climate-related risks could affect credit quality or capital adequacy. Most Nigerian banks do not yet publicly quantify how a 2°C warming scenario would impact their Capital Adequacy Ratio (CAR). I have seen many Tier-1 banks’ annual sustainability reports, which often focus on CSR or operational footprints such as paper saving rather than quantitative financial stress testing of their loan books under climate scenarios.

Across the sectors, the pattern is consistent: ESG reporting highlights impact but underplays exposure.

Investors, however, are paying attention. Capital is increasingly flowing toward companies that can demonstrate resilience, not just responsibility. They want to understand exposure to climate risks, as well as the robustness of mitigation strategies, and the extent to which sustainability considerations are embedded in financial decision-making.

To correct these issues, the management must ensure that they conduct materiality assessments that engage investors, regulators, and affected communities to identify the issues that genuinely matter. Also, ESG must be integrated into core functions such as finance teams quantifying climate exposure, risk teams modelling environmental disruptions, and operations accounting for resource dependencies.

Disclosures must evolve from narrative reports to data-driven insights that reflect risks and impacts. More importantly, investors should be able to see not just what a company is doing for society but also how sustainability risks shape its financial future.

The objective is not to abandon CSR, but to modernise it. The purpose of social responsibility is to convert social problems into economic opportunities, as observed by Peter Drucker, the father of modern management, in a book, “The New Meaning of Corporate Social Responsibility”. That principle remains relevant but only if companies align it with transparency, accountability, and financial discipline.

Lastly, companies that understand ESG and prepare in today’s environment will attract capital, build resilience, and remain competitive.

Femi David OLAWAFEMI; ESG & Sustainability Professional ([email protected])