Nigeria’s Evolutionary Journey Towards ESG Adoption

A report published by Nigeria Employer’s Consultative Association in collaboration with the International Labour Organisation outlined prospects, progress and challenges facing Nigeria’s journey towards ESG adoption, writes Dike Onwuamaeze

The level of maturity in adopting the Environmental, Social and Governance (ESG) reporting among corporate entities in Nigeria varies significantly. Also, embracing the adoption of the ESG is driven in the country by regulatory exposure, access to capital, international market integration and operational risks.

These are among the key findings of the report titled the “ESG State of Play Report in Nigeria,” which was released on Friday. The report is published by Nigeria Employers’ Consultative Association (NECA) in collaboration with the International Labour Organisation (ILO) to strengthen employers’ capacity, awareness and participation in ESG practices in Nigeria.

According to the Director General of NECA, Mr. Adewale-Smatt Oyerinde, the report embodied the overall perception of Nigeria’s private sector, regulators, development partners and the civil society through stakeholder consultations, validation sessions and engagements across the sectors to depend understanding, strengthen awareness and foster collective action on ESG practices among employers and key stakeholders across the country.”

Another finding of the report is that Nigeria’s ESG landscape is constrained by systemic and sector-specific challenges such as limited data availability and quantity, regulatory gaps and overlaps, financial constraints, capacity and technical skills gaps, low awareness and cultural restraints and infrastructure limitations.

The report stated that the most frequently cited ESG challenges in Nigeria among respondents were lack of clear national ESG standards (or frameworks).

Other notable barriers, according to the report, include the complexity and cost of ESG reporting, limited incentives, low management commitment and insufficient financial resources, which appeared less frequently but still highlighted structural constraints that slow ESG adoption.

It stated that capacity and technical skill gaps remained an issue as there are few trained sustainability professionals within firms. “There is also limited awareness of frameworks such as Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Taskforce on Climate-related Financial Disclosures (TCFD), NSBP and the difficulty in translating ESG principles into operational practices,” it said.

The report ascribed regulatory gaps and overlaps to fragmented ESG mandates of multiple government agencies like Security and Exchange Commission (SEC), Central Bank of Nigeria (CBN), Federal Ministry of Environment, the National Environmental Standards and Regulations Enforcement Agency (NESREA) and Nigerian Exchange Group (NGX).

It said that low awareness and cultural resistance have made ESG to be perceived as “philanthropy” rather than value-adding business initiatives. This is largely due to limited understanding of ESG’s impacts on a business value in terms of efficiency, brand reputation and investor attractiveness.

According to the report, the ESG is an open door to investments capital “that many companies, especially the Micro, Small, Medium Enterprises (MSMEs) cannot mobilise” including “limited access to green finance, despite emerging instruments like green bonds.”

It also blamed poor waste management systems, inconsistent power supply that undermined clean energy transition, limited recycling and circular economy ecosystems on infrastructure limitations.

The response to the report’s survey questionnaire showed that about 40 per cent of organisations are not yet measuring or reporting ESG while 21 per cent report only internally, showing that most sectors remain at an early stage of ESG adoption.

It stated, “Only16 per cent produce integrated reports and 23 per cent publish annual sustainability reports, indicating that mature ESG reporting is concentrated in just few sectors such as financial services, manufacturing, agriculture, services, consulting and energy, oil and gas.”

Notwithstanding, the report said that companies perception of the overall enabling environment for ESG adoption in Nigeria are generally positive, with most rating it as very supportive or somewhat supportive.

But a notable share of the respondents remained neutral, “and smaller portion perceive the environment as unsupportive, highlighting opportunities for further enhancement.” Yet, with barely two years to the commencement of mandatory implementation of IFRS Sustainability Disclosure Standards for Public Interest Entities (PIEs) in Nigeria, it is worthy to state that the message has gone out loud and clear, and is gaining roots in the consciousness of corporate organisations that companies that want to stay competitive and trusted must treat ESG reporting as a serious board-level responsibility.

“Still at its evolutionary stage, the adoption of the ESG reporting has gone through its first phase, which is the early adopters’ stage, which ended on December 31, 2023. The requirement for this phase was that entities must pass a readiness test assessment to qualify. During this stage only four PIEs, namely Access Bank Plc, MTN Nigeria Plc, Fidelity Bank Plc and Seplat Energy embraced the principles of ESG reporting.”

It added, “The evolution is crrently in its second phase, which is the “voluntary adopters stage” that started running from January 1, 2024 and would continue until December 31, 2027. This phase required that “entities must be subject to the readiness test assessment.”

“The PIEs that are participating in the voluntary adopter’s stage are First Bank of Nigeria, Zenith Bank, Stanbic IBTC, Julius Berger, Globus Bank, Wema Bank, Sunbath Global Concepts, NEM Insurance, Uniliver and the First City Monument Bank Plc.”

“The third phase in the ESG’s evolutionary journey is the mandatory adoption stage whose effective dates are January 1, 2028 for all PIEs and January 1, 2030 for the Small and Medium Enterprises (SMEs). This phase makes readiness assessment “compulsory before the first sustainability report. The last stage in the evolutionary process is ESG reporting by governments and government’s owned organisations.” The report said that “a review will occur once the International Public Sector Accounting Standards Board (IPSASB) finalises   sustainability reporting standards for public sector entities, determining when these disclosures will be required.”

The report said that the country has so far made significant achievements in incorporating ESG principles into its financial and corporate sectors.

“A milestone initiative is the Nigeria Sustainable Banking Principles (NSBP) that was introduced by the CBN in 2012. The NSBP requires banks and financial institutions to systematically integrate environmental and social risk considerations into their lending and investment decisions.

“This mandate also mandates regular reporting on ESG-related metrics, fostering greater transparency and accountability within the banking sector,” the report said.

In addition, the SEC has also developed Sustainable Financial Principles (SFP) for capital market participants. These principles establish mandatory ESG disclosure and reporting guidelines, encouraging listed companies and market actors to align with global sustainability standards.

The SEC’s approach reflected a growing regulatory emphasis on ESG risk management and performance tracking. It also signaled a shift from voluntary to more structured ESG compliance.

Moreover, Nigeria’s engagement with international ESG networks such as the International Organisation of Securities Commission’s Global Emerging Markets Committee further demonstrates the country’s commitment to aligning domestic practices with global sustainability norms.

On the environmental policy level, institutions like the National Council on Climate Change (NCCC) and the NESREA coordinate frameworks for climate action and environmental compliance, reinforcing the regulatory ecosystem supporting ESG objectives.

Despite these recorded progress, the report stated that “Nigeria lacks a unified national ESG standard, resulting in fragmented reporting and compliance landscapes, ESG expectations for small and medium-sized enterprises remain limited with most frameworks targeting large firms.

Similarly, the report said, “Social metrics and disclosures are underdeveloped and less standardised compared to environmental and governance aspects. Also, enforcement mechanisms are generally weak with many ESG’s principles remaining voluntary. Additionally, ESG capacity constraints persist, especially among smaller firms and less mature sectors.”

The corollary, according to the report, is that while some organisations shared a range of ESG’s initiatives like tree planting, energy efficiency imnprovements and waste recycling amongst others, “some organisations reported no current ESG projects or are still in the preparation phase, indicating varying levels of ESG implementation across these sectors.”

It added that among the financial services companies that were surveyed adding that, “ESG aligned or sustainable assets currently make up a relatively small portion of portfolios, with most reporting between 0-50 per cent and some not measuring this at all. A few companies indicated they do not offer ESG-themed financial products, highlighting an opportunity for growth in suatainable investment offerings.”

The report also stated that, “Respondents overwhelmingly identified the mandatory implementation of standardised ESG reporting frameworks, supported by strong regulatory enforcement as the single most impactful action to accelerate ESG adoption across Nigeria’s public and private sectors.

“Additionally, widespread awareness, training, and government-backed incentive were frequently highlighted as essential to drive compliance, accountability and sustainable investment.”