Nigeria’s Bold Steps Toward Adoption Of ESG Reporting Standards

Nigerian President, Bola Ahmed Tinubu

By EDET UDOH

The effects of Climate change pose an existential threat to the planet through continued rise in temperatures, droughts and wildfires, decreasing availability of fresh water, floods, rise in sea-level and coastal areas, negative impacts on biodiversity, and erosion of soils among many other negative outcomes which impact society, businesses and economies as well as territories. It’s, therefore, imperative for governments, organizations, the private sector, businesses and society, in general, to put measures in place to reverse the many negative impacts of climate change and drive concerted efforts for a more sustainable use of all-natural resources.

Environmental, Social and Governance (ESG) issues are now more than just a “good to have” but an integral “must-have” strategy for any organisation. In essence, ESG is presenting an unprecedented new set of risks to organisations in every sector, influencing all aspects including resource use and sustainability, climate change, hiring and retention of talent, board selections, human rights and Investors, regulators, policymakers, consumers and other key stakeholders exerting extreme pressures and scrutiny on every organisations stance on all issues ESG.

In Africa, this calls for concerted efforts by all stakeholders including governments, corporate entities, institutions, nonprofit making and none governmental organizations, educational institutions and individuals to drive climate change adaptation and mitigation, champion sustainable/climate finance, mobilise and deploy impact capital on the continent and acceleration of the efforts towards achieving the UN sustainable development goals on the continent. By driving the increasing adaptation and incorporation of environmental, social and governance principles in all investment decisions, mobilising and deploying more purposeful impact capital to development sectors to champion the uptake and adoption of sustainable, green climate finance across the continent.

At this juncture, there is a need to set standards and develop guidelines and regulations that will guide and drive the uptake and adoption of sustainable, green climate finance in Africa and one of such standards and guidelines is the Environmental, Social and Governance (ESG) reporting standards, which is the major focus in this article.

Regulators and standard setters in various jurisdictions have issued definitive proposals to transform ESG reporting in 2022. The year brought proposed ESG disclosures from the European Union (EU) as part of the Corporate Sustainability Reporting Directive (CSRD), internationally by the International Sustainability Standards Board (ISSB), and in the United States (US) by the Securities and Exchange Commission (SEC). These proposals each detailed expansive sustainability disclosure requirements – although their proposed scopes and other details varied.

Understanding where the frameworks align and diverge will help companies develop the requisite reporting strategy, data-gathering processes, and related controls, providing for a streamlined process and effective deployment of resources.

One of the foundational points of alignment among the frameworks is the incorporation of elements based on the Task Force on Climate-related Financial Disclosures (TCFD) framework. Leveraging this popular framework unites the disclosure frameworks through key themes, including required disclosure of the broad impacts of sustainability-related risks as well as governance and oversight of the related risks and opportunities.

Sustainability disclosure practices in Nigeria are gaining importance in recent years as businesses and stakeholders recognize the need for transparency and accountability in addressing environmental, social, and governance (ESG) issues. While Nigeria is still in the early stages of developing comprehensive sustainability reporting frameworks, there are notable efforts to promote sustainability disclosures.

Interestingly, stakeholder engagement and collaboration as well as training on ESG reporting has commenced to educate professionals from Corporate Organisations, institutions and individuals on Environmental, Social and Governance (ESG) reporting.

The Lagos Business School (LBS) Sustainability Centre recently organised a training session to educate professionals from Corporate Organisations, institutions and individuals on the Environmental, Social and Governance (ESG) reporting on the theme “Collaborating in the Changing Reporting Landscape”

This was more imperative as calls for increased transparency in performance and impact measurement heightened, leading to Nigeria’s adoption of the IFRS Sustainability Disclosure Standards, IFRS S1 and S2 in a practical demonstration of its mandate to provide first-class solution-driven training for professionals on various business areas to enhance their capabilities and performance.

The engagement was aimed at helping business executives and sustainability practitioners understand the demands of this changing landscape, collaborate for more robust reporting, deploy responsible business practices and avoid greenwashing.

Speaking at the meeting, Dr Iheanyi Anyahara, Director, the Financial Reporting Council of Nigeria, walked attendees through the evolution of sustainability reporting in Nigeria and the globe, citing the needs that prompted it in the first instance.

He said, “The Corporate Social Responsibility (CSR) reports put together by companies were never standardised, hence, the need for standardised Environmental, Social and Governance (ESG) reporting.

He further added that sustainability brings about innovation which in turn accelerates development, noting that “Little wonder, investors and stakeholders rely on accurate and transparent sustainability reporting to unlock capital, attract Foreign Direct Investment (FDI) and implement FEC 2010 directives.”

Marilyn Obaisa-Osula, Associate Director, PwC Nigeria; gave sustainability insights for organisations and individuals who seek to get it right by ticking the right boxes for performance measurement of impact across critical materialities and metrics.

She said, “Sustainability aims to drive value. Sustainability reporting offers a genuine competitive advantage, and businesses that take the time to learn about and implement sustainability reporting now will be well-placed to succeed in the long term ahead of compliance and regulations. We must look at the opportunities sustainability provides through a local lens, and oftentimes, when we do, they become adopted as globally accepted frameworks.”

She added that “Sustainability does not wipe out profit but tells you to look at your business growth beyond profit. Accountants now see sustainability and understand it because they see the opportunity in it and the funds that can be unlocked from it.”

A Question and Answer session was facilitated by Eunice Sampson, Director, Climate Change & Sustainability at Ernst & Young; who made the session truly impactful.

She harped on the need for practitioners to stay ahead of regulation by being up to date with new requirements and trends in the industry to keep their organisations afloat.

She said “ Businesses mostly fail not because of financial issues but because of ESG issues. They lose reputational capital, they lose customer base, and many other things, etc which ultimately lead to business failure. Financial failure is a symptom. Ethics, integrity, accountability and transparency are all governance issues in sustainability.”

She added “You must have your business case for sustainability.”

Dr Godwin Ihetu, former Managing Director (MD), of Nigeria Liquefied Natural Gas (NLNG) also gave his remarks, highlighting the importance of sustainability in the oil and gas sector, and its intersection and interconnectedness with climate change and energy transitions.

Agric Sector Sustainability Reporting Standard

The Africa regional hub of the Global Reporting Initiative (GRI) in partnership with the Lagos Business School Sustainability Centre (LBSSC) unveiled the GRI 13 Sector Standard designed to enhance the quality, consistency and comparability of reporting sustainability impacts for Agriculture, Aquaculture and Fishing sectors.

The event which took place on Thursday, November 30, 2023, at the George Hotel, Lagos, doubled as the Launch of the new reporting standard and a platform for stakeholder dialogue.

The sector-specific reporting standard which they said will come into effect on January 1, 2024, spotlighted businesses in the sector in ways to enable sustainable agricultural practices that enhance fair trade, improve competitiveness and promote responsible business conduct.

In her welcome remarks, Oreva Atanya, Head, Sustainability, Lagos Business School, pointed out the importance of a globally aligned but locally useful and applicable guide for business with sustainability goals and objectives that will be beneficial to our food production systems and the related supply chains.

In his presentation of the GRI13, the Director, GRI Africa, Douglas Kativu who spoke on ‘Driving Responsibility and Accountability in Agriculture, Aquaculture, and Fishing’ maintained that the sector reporting standard is developed to provide information that applies to organisations involved in crop, animal and fisheries production, with 26 likely material topics for the sectors grouped under climate and environment, human rights and communities, equitable livelihoods, ethics and governance, food and health, employment and farming and fishing practices.

The topics align with many authoritative international instruments defining responsible business conduct as well as the Sustainable Development Goals (SDGs) 2030.

There is no doubt agriculture and food systems have an immense impact on the triple bottom line of people, planet and profits, hence, the need to curtail excesses of players in the sector by standardising the quality of systems, products and processes in the agriculture sector for better environmental stewardship, social equity and economic viability. Its the hope of GRI, LBS and the sector players that the new sector standard will reduce greenwashing and increase the quality of sustainability reporting while enhancing the completeness and compatibility of sustainability information for all organisations in Nigeria involved in the sector.

A panel discussion on “Enhancing Competitiveness Through Responsibility, Traceability, and Shared Value”; proffered solutions to the various traceability and standardisation challenges plaguing the sector in Nigeria. The panel was made of expert speakers drawn from the academia and agro-allied industry namely: Dr Ikechukwu Kelikume, Academic Director, Agribusiness Management Programme (AGMP), Lagos Business School; Dr Helen Emore, Co-Founder, Agro-Verified, and Scientia Partners; Oluwafunmilayo Ajibike Olawale, Chief Operating Officer, JR Farms Africa; and Nnena Jane Ogoke, National Sales Manager, AFEX Commodities Exchange.

This sector-specific reporting standard which comes into effect on January 1, 2024, according to Jonathan Ikeolumba, Affiliate Researcher, Lagos Business School Sustainability Centre, who delivered the summary of learnings,  will spotlight for businesses in the sector ways to enable sustainable agricultural practices that enhance fair trade, improve competitiveness and promote responsible business conduct.

Leveraging ESG and Priorities In Insurance Sector

The Lagos Business School Sustainability Centre led the convening of the 2023 Chief Executive Forum on Sustainability Business themed ‘Leveraging Environmental, Social and Governance (ESG) and Priorities in the Insurance Sector.’

The Forum is a high-level knowledge-sharing platform for business leaders to learn and deliberate on sector-specific sustainability issues, and this year’s spotlight was on the insurance services sector. The event took place on Thursday, November 2, 2023, at the prestigious Lagos Oriental Hotel in Victoria Island, Lagos.

In his opening remarks the Dean, Lagos Business School, Prof Chris Ogbechie, welcomed the C-suites and laid out the forum road map and objectives. He implored the insurers to see Sustainability and  ESG as an opportunity and not a cost item, calling on them to leverage the insights and best-case practices the forum will provide.

He added that the “Lagos Business School, through the LBS Sustainability Centre, is committed to supporting the private sector in their sustainability journey and the Chief Executive Forum serves as a platform to extend this support to the insurance sector, fostering collaboration and knowledge sharing among industry leaders”.

The keynote presentation titled ‘Opportunities for Growth in ESG Finance and Risk Management’ was delivered by Mrs Tomi Adepoju, Partner and Head, Enterprise Risk and ESG Service, KPMG West Africa.

She pointed out the unique opportunities for growth in market share, sales volume and profitability for insurers if they understand and mainstream Environmental, Social, and Governance (ESG) principles in their business strategy.

She highlighted business cases across the globe which have become success stories of insurers leveraging creativity and innovation in the design of their policies, premiums, and products, adding that incentivising policyholders to make green choices helps to curb risks that hold great danger to the environment and society.

She said, “When we craft our ESG strategies as insurers, we need to embed ESG into our corporate strategy and then retool our business models to ensure it is ESG focused. How do we ensure we have strong governance via diversity in boards and management? How do we embed risk management within our risk management framework? We need to look at product innovation to optimise ESG in our products and services to encourage risk reduction for policyholders. We can do this through gamification, apps and data, so policyholders are incentivised to make green choices and pay lower premiums.”

She also indicated that “countries are reducing carbon footprint, Lagos State just bought Electric Vehicle (EV) buses, do we have insurance for EVs, how do our insurance products take advantage of these market changes driven by Sustainability? “For example, AXA Pay As You Drive offers a 10 percent discount if you do less than 10k km yearly, and increases to 15% if you do less than 5km yearly.” This is to reduce carbon footprint, highlighting that under responsible investments they got 1.3 billion dollars for green businesses in 2023.  She submitted that insurers in Nigeria need to invest in green initiatives and ensure they are walking the talk as it relates to ESG with an ESG road map for their organisations.

Roundtable discussions by the C-Suite insurers ensued focusing on key areas that are crucial for the insurance sector’s sustainable growth and impact by leveraging ESG principles.

Goodwill remarks were also delivered by the Chief Operating Officer (COO), United Nations Global Compact (UNGC) Nigeria office, Mrs Tumi Onamade who pointed out that Africa is not the largest contributor to climate change, however, insurers should engage with UNGC for better adaptation measures to curb ESG risks by leveraging the UNGC’s principles to better position themselves to access opportunities that abound in the ESG space, while moving the ESG mandate forward.

Overall, the C-suite insurers were able to explore the implications of climate risk on insurance businesses and discussed strategies to effectively manage and mitigate these risks to accelerate ESG governance in businesses, considering the unique challenges and opportunities in Africa to enhance resilience and sustainability in the insurance sector. The forum harped on inclusivity, innovation, and social responsibility in the insurance services sector in driving sustainable growth in the insurance industry.

Dr Emeka Azinge, Faculty, Lagos Business School, wrapped up the proceedings of the forum in a well-articulated summary of learnings while Jonathan Ikeolumba, Faculty, Enterprise Development Centre, gave the call to action. Mrs Oreva Atanya, Head, Sustainability, Lagos Business School, closed the forum by responding to questions. She delivered the vote of thanks and urged the insurers to stay ahead of regulation by creating principles the regulators can adopt which will guide the insurance players in the sector. She added that the insurers should emulate the bankers’ committee in forging sector-wide principles that create better outcomes for businesses to help curb multi-dimensional risks.

KPMG’s Assessment of Nigeria’s Sustainability Reporting

Data obtained from KPMG’s report on Sustainability Reporting in Nigeria, titled “Big Shifts, Small Steps,” stated that Nigeria’s Sustainability reporting rate stood at 78% compared to global 79%.

The report also examined the Sustainability Reporting rate in Nigeria in comparison with South Africa and the United Kingdom.

South Africa Versus Nigeria

In Nigeria, 55% out of N100 Companies include ESG/Sustainability information in their annual report while 95% of N100 companies in South Africa did so.

Out of N100 Companies that state they follow the International Integrated Reporting Framework, Nigeria scored 4%, and South Africa 84%.

25% out of N100 companies in Nigeria seek assurance for their ESG/Sustainability information, compared to South Africa’s 49%.

41% of N100 companies in Nigeria identify material topics, 86% in South Africa.

Of N100 companies that have a dedicated member of the Board and/or leadership team responsible for sustainability: Nigeria 20% and South Africa 36%; Out of N100 companies that included Sustainability within compensation: Nigeria 14% and South Africa 39%.

Of N100 that identify specific Sustainable Development Goals (SDGs) it considers most relevant to the business – Nigeria 44, South Africa 77; 30% of N100 companies in Nigeria report carbon reduction targets compared to 67% in South Africa.

Out of N100 that recognises the loss of biodiversity/nature as a risk to the business – Nigeria 22, South Africa 68; of N100 companies that acknowledge climate change as a financial risk to business – 34% in Nigeria and South Africa 92%.

Of the N100 companies that acknowledge social elements as a financial risk to business – Nigeria 45%, South Africa 92%, and out of N100 companies that acknowledge governance elements as a financial risk to business – Nigeria 41% and South Africa 91%.

United Kingdom Versus Nigeria

In Nigeria, 55% out of N100 Companies include ESG/Sustainability information in their annual report while 93% of N100 companies in the United Kingdom.

Out of N100 Companies that state they follow the International Integrated Reporting Framework, Nigeria scored 4%, compared to the United Kingdom’s 12%.

25% out of N100 companies in Nigeria seek assurance for their ESG/Sustainability information, compared to the United Kingdom’s 69%. 41% of N100 companies in Nigeria identify the material topics, 80% in the United Kingdom.

Of N100 companies that have a dedicated member of the Board and/or leadership team responsible for sustainability: Nigeria 20% and the United Kingdom 83%; Out of N100 companies that included Sustainability within compensation: Nigeria 14% and the United Kingdom 59%.

Of N100 companies that identify specific Sustainable Development Goals (SDGs) it considers most relevant to the business – Nigeria 44, United Kingdom 87; 30% of N100 companies in Nigeria report carbon reduction targets compared to 98% in the United Kingdom.

Out of N100 companies that recognize the loss of biodiversity/nature as a risk to the business – Nigeria 22, the United Kingdom 77; of N100 companies that acknowledge climate change as a financial risk to business – 34% in Nigeria compared to the United Kingdom’s 94%.

Of the N100 companies that acknowledge social elements as a financial risk to business – Nigeria 45%, the United Kingdom 95%, and out of N100 companies that acknowledge governance elements as a financial risk to business – Nigeria 41% and the United Kingdom 95%.

Regulatory Support: Climate Change Act

According to KPMG Nigeria’s analysis of the N100 data, Nigeria’s sustainability reporting rate decreased by 7% between 2020 (85%) and 2022 (78%). This decline is mostly attributable to a change in the list of Nigerian N100 companies with the highest revenues; some companies that appeared

on the 2022 N100 list did not disclose their sustainability performance, as contrasted to companies that were on the 2020 N100 list.

“However, 35 countries that participated in the KPMG global survey, including Canada, China, the United Kingdom, and the United States, recorded an increase in their reporting rates between 2020 and 2022.

“We anticipate that there would be a lift in sustainability reporting in Nigeria as a result of two key factors. First, the trend toward mandatory sustainability reporting is growing. For example, in November 2021, Nigeria enacted The Climate Change Act, which mandates sustainability reporting for businesses with more than 50 employees. In addition, Nigeria has established the National Council on Climate Change (NCCC) to implement the Act and has set a net-zero emissions goal by 2060. Secondly, the introduction of non-financial reporting regulations would also catalyse sustainability reporting in the future.

“Sector-specific regulations/frameworks also have a crucial part to play e.g., the Petroleum Industry Act (PIA) and the Nigerian Sustainability Banking Principles (NSBPs). We forecast that as the legislative, judiciary, and executive arms of government begin to recognise the role of sustainable development, this would act as a push factor for more regulatory support for sustainability reporting in Nigeria. In addition, as institutional investors’ (commercial banks, pension funds, insurance, and mutual funds companies, etc.) consideration for sustainability-related metrics grows due to the adoption of Principles of Responsible Investment (PRI), it is expected that sustainability reporting rates will also soar.

“Though there was a decline in Nigeria’s sustainability reporting rates from 2020 to 2022, data shows that since 2015, Nigeria’s reporting rate has always been significantly greater than the global average (particularly from 2015 to 2020).

“However, the synthesis of data shows that South Africa (the current African sustainability reporting champions) has always had higher sustainability reporting rates than Nigeria. Moreso, South Africa’s sustainability reporting rates have always exceeded 90% in the past 10 years, a trend that was also observed in the United Kingdom. This may be explainable as companies on the Johannesburg Stock Exchange in South Africa are mandated to report on sustainability. Thus, sustainability reporting and financial reporting are integrated in South Africa.

Integrated Reporting

Integrated Reporting — that is, a report that combines both financial and non-financial data in a single annual report — is significantly low among the N100 in Nigeria. In 2022, South Africa had the highest integrated reporting rate in Africa and one of the highest in the world, at 84%. On the other hand, at 12%, the rate of Integrated Reporting in the United Kingdom was a bit low and only 8% higher than in Nigeria.

Reporting sustainability data in annual reports

KPMG analysis revealed that in Nigeria only 55% of N100 companies report sustainability-related information in their financial reports, which is 5% lower than the global N100 average of 60%. It shows that Nigeria deviates significantly from the corresponding percentages recorded in South Africa and the United Kingdom. The prominence of such organisations utilising stand-alone sustainability reports can spur this difference in data.

Materiality Assessment

From our survey, 41% of N100 companies in Nigeria disclose their material topic/issues. There is a gap between this percentage and the corresponding percentages of South Africa |(86%), the United Kingdom (80%), and even the global N100 average (71%). In years to come, it is expected that the utilisation of materiality assessment and matrix would increase as sustainability reporting morphs from voluntary to mandatory. The benefits of materiality assessment which equips companies to prioritise sustainability areas whilst balancing stakeholders’ concerns with potential impact may also drive greater materiality assessment adoption going forward.

Assurance Rate

Another finding from this survey was that the assurance rate of N100 companies is quite low at 25%. This is lower than the global average N100 Assurance rate of 47% as well as those of South Africa (49%) and the United Kingdom (69%).

With the inherent risk of greenwashing, the need for assured sustainability reports would be crucial to ensure transparency and stakeholder confidence in sustainability non-financial disclosures. The choice of assurance could either be limited or reasonable assurance with varying levels of assurance on ESG disclosure data, methodology and calculations.

The KPMG report further stated that the Financial Reporting Council of Nigeria, COP 27, announced that it will move to adopt the International Sustainability Standards Board’s (ISSB) IFRS Sustainability Disclosure Standards in Nigeria when they are issued in 2023.

“The Nigerian Climate Change Act and the establishment of The National Council on Climate Change (NCCC) to implement the Act, is expected to catalyse ESG reporting in Nigeria if enforced. Consequently, reporting rates are expected to grow as new regulations on non-financial reporting is introduced,” the report added.

The KPMG 2022 survey findings indicated four major trends in sustainability/ESG reporting across Nigeria, thus:

ESG governance is inadequate

Setting the tone at the top (board and leadership level) is a major driver for sustainability evolution and integration across organisations. Currently, the tone at the top is not sufficient to drive consistent and accurate sustainability reporting for Nigerian companies. In addition, just a few organisations include sustainability within compensation structure and KPIs. Organisational leaders would need a mindset shift and increase the consideration for ESG-related matters across their business operations and investment decisions. Their social license to operate may be dependent on this in the future.

Assurance of Sustainability/ESG report is undertaken by very few companies

From the survey, it was observed that, three-quarter of organisations that report do not have their sustainability reports assured, as just one-quarter undertake assurance of their ESG reports. With the potential risks of greenwashing, assurance of ESG data would become increasingly germane as demand for transparency is on the rise by both external and internal organisational stakeholders.

Biodiversity risk acknowledgement is low

Despite the growing global awareness of biodiversity and its risk to organisations, less than a quarter of Nigerian companies report biodiversity as a risk to their business.

The need for improvement is imperative across all 3 ESG pillars

Based on the findings by KPMG, the need for improvement on the three pillars of ESG is imperative in Nigeria; current reporting rates across the three pillars are somewhat low. Importantly, reporting across all ESG risks is majorly narrative in nature with little quantification of the financial impact of these risks on the companies and/or society. To move the needle of ESG reporting, every pillar (environmental, social, and governance) risk should be adequately tracked, measured and disclosed/reported.

Commenting on this, Head of Global ESG, KPMG International, John McCalla-Leacy said, “Companies need to continue to make urgent progress with ESG reporting in a way that supports their short-term and long-term business objectives. A robust sustainability reporting ecosystem will help businesses

not only measure progress on executing their ESG strategy but also support businesses in driving value while mobilising capital markets to help support innovative and much-needed solutions to the many societal issues we face.”

IFRS Sustainability Disclosure Standards

In 2023, the Financial Reporting Council of Nigeria (FRCN) inaugurated the Adoption Readiness Working Group (ARWG) for Sustainability Reporting in Nigeria. The ARWG is tasked with developing a roadmap for the implementation of the International Sustainability Standards Board’s (ISSB) IFRS sustainability disclosure standards in Nigeria.

The FRCN also announced that Nigeria will be an early adopter of the IFRS sustainability disclosure standards. This means that Nigerian companies will be required to disclose information on their ESG performance by the IFRS standards, starting in 2024.

These developments are a positive sign for the future of ESG reporting in Nigeria. They suggest that the government and regulators are committed to supporting ESG reporting and that there is growing recognition of the importance of ESG reporting among Nigerian companies.

In fulfilment of its mandate, FRCN has, in January this year, released a draft road map report for the adoption of IFRS Sustainability Disclosure Standards In Nigeria to drive the process, as highlighted hereunder.

The International Sustainability Standards Board (ISSB), published two exposure drafts in March 2022: one on climate-related disclosure requirements (IFRS S2) and one on general disclosure requirements addressing governance and other sustainability matters (IFRS S1). IFRS S1 requires companies to “refer to and consider” the applicability of the disclosure topics and related metrics in the industry-based SASB standards. Other sources, such as the Climate Disclosure Standards Board (CDSB) Framework, pronouncements from other standard setters, and the ESRS and Global Reporting Initiative (GRI) standards may also be considered.

IFRS S1 and IFRS S2 are effective for periods beginning on or after January 1, 2024. The ISSB provided transition relief, however, requiring only climate-related disclosures in the first year of reporting.

SASB Standards

In August 2022, the IFRS Foundation assumed responsibility for the Sustainability Accounting Standards Board (SASB) Standards when it merged with the Value Reporting Foundation (VRF). SASB Standards enable organizations to provide industry-based sustainability disclosures about risks and opportunities that affect enterprise value.

The SASB standards are broken down by industry, making SASB metrics comparable from company to company within an identified peer group. There are 77 identified industries in the SASB Standards, in 11 different Sectors, across 5 dimensions of sustainability namely, environmental, social capital, human capital, business model and innovation, leadership and governance. SASB Standards play an important role in the IFRS S1 & S2 Exposure Drafts.

TCFD Recommendations

The Task Force on Climate-related Financial Disclosures (TCFD) was established by the Financial Stability Board (FSB) in 2015, to develop consistent disclosure standards for companies, and to enable the assessment of companies’ climate-related financial risk. The recommendations were published in June 2017, and have until now effectively been serving as the industry standard for climate-related disclosures. The TCFD structured its recommendations around four thematic areas that represent core elements of how organizations operate: governance, strategy, risk management, and metrics & targets. ISSB will take over the responsibility of the Task Force on Climate-related Financial Disclosures (TCFD) as early as July 2024. This responsibility was previously held by the Financial Stability Board (FSB).

Associate Consultant, ESG & Sustainability, Dupht Consults Limited, Ibadan, in his article “ESG Reporting in Nigeria: Challenges and Opportunities,” highlighted the challenges and opportunities of ESG reporting in Nigeria.

Local regulations/guidelines supporting Nigeria’s ESG initiatives

The Environmental Impact Assessment Act (EIA) 2004 (Laws of the Federal Republic of Nigeria – LFN)

The Act mandates that an environmental impact assessment must be conducted for any project or activity that is likely to significantly affect the environment.

The EIA report is required to be submitted to the National Environmental Standards and Regulations Enforcement Agency (“NESREA” – the Federal Environmental Protection Agency) for approval and a certificate issued.

The Companies and Allied Matters Act, 2020 (“CAMA”)

CAMA imposes an environmental obligation on directors of Nigerian companies. CAMA mandates directors to consider the impact of the company’s operations on the environment in the community where the company carries out its business operations.

The Petroleum Industry Act, 2021 (“PIA”)

Section 239 of the PIA empowers a body known as the Host Community Development Trust to finance and execute projects for the benefit and sustainable development of host communities. This provision mandates operators to participate in environmental and social sustainability actions in the communities in which they operate such as decommissioning and the abandonment of petroleum wells, installations, structures, etc.

The Nigerian Sustainable Finance Principles (“NSFP”)

In April 2021, the SEC, the apex regulatory body for Nigeria’s capital market, approved the NSFP Guidelines for the Nigerian capital market. The Guidelines were developed by the Financial Services Regulation Coordinating Committee of the SEC. Principle 1 of the Guidelines – ESG Considerations – provides that public interest/ listed entities will integrate ESG considerations into their operations and decision-making processes to avoid, minimize or offset negative impacts. It further provides that regulated entities should put in place effective governance structures and consider the impact of their operations and activities on the environment and society.

NSE SustainabilityDisclosure Guidelines, 2019

The NSE plays a vital role in promoting sustainability reporting among listed companies. In 2017, the NSE launched the NSE Sustainability Disclosure Guidelines, which provide a framework for listed companies to disclose their ESG performance. The guidelines cover key areas such as governance, environmental impact, labor practices, human rights, and community involvement.

Nigerian Code of Corporate Governance (NCCG) 2018

The Nigerian Code of Corporate Governance 2018 by the Financial Reporting Council of Nigeria provides guidelines for companies for disclosure of relevant information on their Environmental, Social and Governance (ESG) practices.

FRCN’s Nigeria Code of Corporate Governance

The FRCN, the regulatory body responsible for setting accounting and financial reporting standards in Nigeria, has made efforts to incorporate sustainability reporting into financial reporting requirements. The FRCN’s National Code of Corporate Governance now includes provisions related to sustainability reporting, encouraging companies to disclose ESG information.

The Nigerian Climate Change Act

The Nigerian Climate Change Act, signed in 2017, aims to address climate change and promote sustainable development in the country. The National Council on Climate Change(NCCC) is responsible for implementing the act, which could significantly impact ESG Reporting in Nigeria.

CBN’s Sustainable Banking Principles

In 2019, the Central Bank of Nigeria (CBN) released the Sustainable Banking Principles, which provide guidance to Nigerian banks on integrating sustainability practices into their operations. The principles emphasize sustainability reporting and disclosure as a means to ensure transparency and accountability in the banking sector.

SEC guidelines on sustainable financial principles for the Nigerian capital market

In 2021, the SEC approved the Guidelines on Sustainability Financial Principles for the Nigerian Capital Market. The objectives of the guidelines include stimulating a resilient, competitive and sustainable capital market, and improving corporate governance practices. The guideline requires public interest/ listed entities to integrate ESG considerations into their operations and decision-making processes to avoid and minimize or offset negative impacts.

Challenges and Opportunities of ESG Reporting in Nigeria

Nigerian companies face some challenges when it comes to ESG reporting, including lack of awareness: Many Nigerian companies are not aware of the importance of ESG reporting or the benefits that it can bring; Lack of capacity: Many Nigerian companies cannot collect and report ESG data. This is due to a lack of resources, expertise, and time; Lack of guidance: There is no comprehensive ESG reporting framework in Nigeria. This can make it difficult for companies to know what to report and how to report it Cost: ESG reporting can be expensive, especially for small and medium-sized enterprises (SMEs).

On the other hand, despite these challenges, there are also several opportunities for Nigerian companies that embrace ESG reporting. Some of the benefits of ESG reporting for Nigerian companies include:

Improved access to finance: Investors are increasingly looking to invest in companies with strong ESG performance. By reporting on their ESG performance, Nigerian companies can make themselves more attractive to investors; Reduced risk: ESG reporting can help Nigerian companies to identify and manage ESG risks. This can help to reduce the company’s overall risk profile; Improved reputation: ESG reporting can help to improve the reputation of Nigerian companies. This can make it easier to attract and retain customers, employees, and partners and increase competitiveness: ESG reporting can help Nigerian companies to become more competitive in the global marketplace.

Recommended framework for Nigerian entities

The African Finance Ministers announced their support of the IFRS Sustainability Disclosure Standards, with the Financial Reporting Council of Nigeria being the first to formally announce its intent to adopt them.

IFRS S1 requires companies to “refer to and consider” the applicability of the disclosure topics and related metrics in the industry-based SASB standards. The standard also recommends the consideration of other sources, such as the CDSB, ESRS and GRI standards.

In determining which other frameworks to consider, reporting organizations may also look at which other standards are generally followed in their industry. For example, a report from Columbia University found that nearly all of the upstream US oil and gas companies relied on the TCFD framework.

Reporting organizations may also consider emerging regulations. For example, the SEC’s proposed climate disclosures and the EU’s Corporate Sustainability Reporting Directive (CSRD) are aligned with TCFD.

Thus, Nigerian reporting organizations with affiliated entities that these regulations apply to should ensure whatever framework they apply is aligned with the TCFD recommendations.

Nigeria’s Commitment to World-Leading ESG Reporting Standards

Meanwhile, President Bola Ahmed Tinubu has affirmed Nigeria’s commitment to diligently implement world-leading sustainability reporting standards aimed at unlocking capital investments, transforming business models, and safeguarding the environment in the country.

The President gave the assurance on Thursday, March 21, 2024, at the State House, Abuja, during a meeting with the Chairman of the International Sustainability Standards Board (ISSB), Mr. Emmanuel Faber.

The President’s endorsement coincides with the launch of Nigeria’s Adoption Readiness Roadmap by the Financial Reporting Council of Nigeria (FRC), in collaboration with ISSB.

This roadmap aims to guide businesses towards comprehensive sustainability reporting standards.

During the meeting, President Tinubu emphasized the importance of compliance with the sustainability agenda. He assured that Nigeria would adhere to international standards and expressed readiness to collaborate with ISSB in harnessing national resources through reformed financial management systems.

”As an administration, we are committed to adopting cutting-edge models for financial reporting and process standardization. This applies to environmental regulation, where we are on the verge of significantly reducing the volume of gas flaring in the country. We are more transparent than ever before, and we are doing everything possible to represent the continent in a way that will be beneficial to humanity as a whole,” the President stated.

Mr. Emmanuel Faber, the ISSB Chair, commended Nigeria’s commitment to sustainability reporting. He recalled Nigeria’s expression of intent to be among the earliest adopters of rigorous new standards at COP 27 in Sharm el-Sheikh, Egypt, in 2022. According to Faber, ”I am extremely happy to be in Nigeria as the country announces its Adoption Readiness Roadmap. Nigeria is leading the pack in Africa and around the world, and these standards, which Nigeria is willingly adopting, will unlock sustainable capital inflows through foreign direct investments, promote inclusivity in value chains, and facilitate the decarbonization of the national economy.”

Dr. Rabiu Olowo, the Executive Secretary/CEO of the FRC, explained that Nigeria’s decision to join the global baseline for sustainability reporting demonstrates its early commitment to enhancing transparency in financial information and business performance through sustainable reporting practices. He stated “The adoption readiness working group is set to pilot our affairs and roadmap to help us succeed on this journey. We are happy to inform the President that the work of the adoption readiness roadmap is ready, and we have the roadmap for businesses to follow. We have five sets of early adopters, and we have a period for voluntary adoption leading up to 2028 for mandatory adoption of the standards,”

Nigeria is paving the way for sustainable reporting practices, marking it as a key player in driving economic growth while safeguarding the environment. The implementation of these world-leading standards will attract capital investments, promote inclusive value chains, and contribute to the decarbonization of the national economy.

Conclusion

ESG reporting is becoming increasingly important for Nigerian companies. By embracing ESG reporting, Nigerian companies can improve their access to finance, reduce their risk, improve their reputation, and increase their competitiveness.

The recent developments in the ESG reporting landscape in Nigeria are a positive sign for the future. They suggest that the government and regulators are committed to supporting ESG reporting and that there is growing recognition of the importance of ESG reporting among Nigerian companies.

Since the IFRS sustainability disclosures standard adopted by FRCN refers reporting organizations to the SASB standards for disclosure topics and related metrics across 77 industries, the ISSB reporting adopters in Nigeria are urged to adopt the SASB standards for industry-specific disclosures. However, reporting organizations with affiliated entities in jurisdictions such as the European Union (EU) that report under the CSRD framework will also need to consider the applicability of the TCFD-based CSRD framework.