From Compliance to Strategy: Making ESG Central to Your Investment Story

Introduction

Over the past few years, Nigeria's investment sector has increasingly integrated Environmental, Social, and Governance (ESG) factors into its strategies, driven by global influences, regulatory shifts, investor demand, and a growing recognition of the impact of sustainability on long-term returns. These ESG considerations are increasingly influencing investment decisions globally, and Nigeria is gradually aligning with this practice. The evolving phenomenon of ESG has progressed from being merely recognised as a social phenomenon to a level of policy implementation for business entities.

For some entities, ESG is still placed at a low pedestal or non-pressing subject of business focus, ignoring the impact that their business has on their immediate environment. In most parts of Nigeria, greenwashing practices and social instability still pose a risk. However, other than for investment purposes, the incorporation of ESG is gaining traction in this landscape. This article seeks to analyse the contributory factors to the adoption of ESG as well as the investment landscape in Nigeria.

Underlying Factors to Institutional Incorporation of ESG

The two main factors that contribute to the incorporation of ESG amongst corporate and institutional investors in Nigeria are regulatory constraints and investor demands. They are further explicated as follows:

a.    The Nigerian Regulatory Environment

• Nigerian Exchange Group (NGX) ESG Disclosure Guidelines1:  The Nigerian Exchange (NGX) ESG Disclosure Guidelines encourage listed companies to adopt internationally recognized sustainability reporting frameworks, with particular emphasis on the Global Reporting Initiative (GRI) Standards. By aligning with the GRI, the NGX promotes standardized, comparable, and transparent ESG disclosures that reflect global best practices. The Guidelines recommend that companies undertake materiality assessments to identify and report on issues most relevant to their operations and stakeholders—an approach central to the GRI framework.  Furthermore, the NGX outlines key disclosure areas, including environmental, social, and governance factors, that mirror the GRI’s thematic structure. Through these provisions, the NGX facilitates voluntary sustainability reporting, supports integration of ESG data into corporate reporting processes, and fosters capacity building by providing guidance and training. This alignment not only enhances the quality of ESG reporting among Nigerian listed companies but also positions them to meet the expectations of global investors and stakeholders.

• Central Bank of Nigeria (CBN) Sustainable Banking Principles 2:  This is a strategic framework instituted by the CBN to guide financial institutions in integrating environmental, social, and governance (ESG) considerations into their business operations and decision-making processes. These principles aim to promote sustainable economic development while mitigating the negative impacts of financial activities on the environment and society. By adopting these principles, the CBN seeks to ensure that Nigeria’s financial sector contributes to sustainable development, enhances long-term value creation, and aligns with international best practices. The principles also serve to strengthen risk management, promote responsible lending, and encourage transparency and accountability within the banking industry.

• SEC Nigeria: In May 2021, the SEC adopted the Nigerian Sustainable Finance Principles (NSFP), developed by the Financial Services Regulation Coordinating Committee (FSRCC), to guide Capital Market Operators (CMOs) and other regulated entities in integrating ESG factors into their operations. The principles emphasize enhancing corporate governance, promoting transparency, and encouraging sustainable practices among market participants. They are designed to be principle-based, allowing each regulated entity to implement them in a manner consistent with their mandates, core values, and risk management frameworks. Furthermore, the SEC has introduced guidelines for the issuance of green bonds, providing a framework for financing projects with positive environmental impacts. These initiatives reflect the SEC's commitment to aligning Nigeria's capital market with global sustainability standards and promoting long-term economic growth through responsible investing.

b. The Nigerian ESG Investment Landscape

In recent years, ESG considerations have become central to investment strategies in Nigeria, especially when analyzing the Venture Capital ecosystem. Some notable developments include:

• Availability of Dedicated ESG Fund: Venture capital firms like Seedstars Africa Ventures have launched funds specifically targeting climate tech startups, focusing on sectors such as renewable energy and energy efficiency.3 

• Inclusive Investment Approaches: Organizations like Ventures Platform have advocated for the creation of inclusive climate funds to support underrepresented groups in climate entrepreneurship.4

• Impact Measurement: There is a growing emphasis on developing Africa-specific metrics for measuring the success and impact of climate-focused startups, considering both environmental and socio-economic factors.

There are also various investment opportunities aligned with ESG principles in Nigeria. The scope of their applicability includes:

1. Green Finance

Nigeria has issued sovereign green bonds and is attracting climate-aligned investments. These are debt securities issued to finance projects with environmental benefits 5. The Nigerian government issued its first sovereign green bond in 2017 and was the first African country to issue a sovereign green bond. Further to this, companies like Access Bank and North South Power have followed suit6.

2. Impact Investing

This entails investing in sustainable farming practices and technologies. Sectors like agriculture, healthcare, and education are seeing more socially responsible investments and are the focus for impact investing. Babban Gona, a social enterprise, supports smallholder farmers through access to financing, training, and markets, enhancing productivity and livelihoods.

3. Renewable Energy

There are opportunities to invest in solar and other renewable energy projects in Nigeria, with several financing options available. For example, Ecotutu is a cleantech company that provides solar-powered cold storage solutions to farmers, reducing post-harvest losses and promoting sustainable agriculture7. Also, Fidelity bank Plc recently launched its green energy financing program to support homes, Small and Medium Enterprises (SMEs) in Nigeria to meet their objectives on renewable energy solutions.

Current Landscape and Future Outlook

Today, ESG principles are integral to the investment strategies of many venture capital firms with a focus on:

• Sustainable Innovation:  Investing in startups that offer solutions to environmental and social challenges, such as clean energy and waste management.

• Long-Term Value Creation: Prioritizing investments that promise sustainable returns while contributing positively to society and the environment.

• Regulatory Alignment: Ensuring that investment practices align with national and international ESG standards and regulations.

Still, the investment numbers for the climate tech sector — which includes businesses in renewable energy, carbon removal, land restoration and water and waste management — are compelling: Last year, climate tech startups on the continent raised $1.04 billion, a 9% increase from the previous year and triple what they raised in 2019, according to the Funding Database Africa 8.

In Nigeria, the social and governance components of Environmental, Social, and Governance (ESG)considerations play an increasingly important role in investment decision-making, alongside environmental concerns. Investors, both domestic and international, are placing growing emphasis on these factors due to their direct link to risk management, corporate performance, and long-term value creation.

- Social Factors

Social factors in ESG evaluate how companies manage relationships with employees, suppliers, customers, and the communities in which they operate. In Nigeria, this focuses on:

• Labor practices and human rights: Companies with poor labor conditions, child labor risks, or employee welfare issues, particularly in industries such as manufacturing, mining, and agriculture raise a red flag.

• Community engagement: Companies operating in regions with high community sensitivity, such as the Niger Delta and the Northeastern part of Nigeria, face reputational and operational risks if they fail to build effective local relationships. Investors value proactive social responsibility and inclusive development to secure their interests.

• Diversity, equity, and inclusion (DEI): Increasingly, investors are reviewing corporate policies on gender diversity and equitable employment opportunities, especially in leadership positions.

- Governance Factors

Governance evaluates how a company is led and controlled, encompassing transparency, ethics, board structure, and shareholder rights. In the Nigerian context, governance factors include:

• Board independence and diversity:  Investors scrutinize board compositions for signs of independence, expertise, and gender balance to ensure effective oversight.

• Anti-corruption and compliance:  Nigeria’s history with corruption makes robust internal controls and ethical practices critical for investor confidence, especially for international stakeholders.

• Transparency and disclosure:  Investors value companies that demonstrate clear reporting practices, particularly in financial disclosures, executive remuneration, and ESG metrics.

• Shareholder engagement: Companies that respect minority shareholder rights and allow meaningful investor participation are viewed more favorably.

Conclusion

ESG investing is a diverse investment strategy that goes beyond financial returns to also encompass “social returns”. Essentially, this means gaining financial returns whilst also positively contributing to the society.

Nigeria's investment sector is progressively embracing ESG considerations, with leading companies setting benchmarks in sustainability practices. The adoption of international reporting standards and the emergence of green investment opportunities reflect a growing commitment to responsible investing. Investors seeking to align their portfolios with ESG principles will find a dynamic and evolving landscape in Nigeria. Noteworthy is the need to bridge the skills gap.9

Looking ahead, the continued integration of ESG principles into Nigeria's VC ecosystem is expected to drive more sustainable economic growth and attract global investment, positioning Nigeria as a leader in responsible entrepreneurship in Africa.

 FREQUENTLY ASKED QUESTION (FAQ)

What is ESG investing and why is it growing in Nigeria?‍

ESG investing incorporates environmental, social, and governance factors into financial decisions to improve risk management and drive sustainable long-term returns.

Which regulations govern ESG reporting in Nigeria?‍

Key frameworks include NGX ESG Disclosure Guidelines, CBN Sustainable Banking Principles, and SEC’s sustainable finance initiatives.

What ESG opportunities exist for investors in Nigeria?

‍Green bonds, renewable energy financing, climate tech, impact-driven agriculture, and inclusive social investments are rapidly expanding.

How does ESG improve access to capital?‍

Strong ESG performance signals transparency and reduced risk, attracting both local and international investors.

Who must comply with ESG regulations in Nigeria?‍

Mainly listed companies and financial sector operators, though adoption is expanding across private markets.

References:

[1] (2022) https://ngxgroup.com/ngx-gri-ngx-regco-foster-nigerias-esg-goals-build-capital-market-capacities/ Accessed 14/05/2025

[2] (2012) CBN Circular on The Implementation of Sustainable Banking Principles by Banks, Discount Houses and Development Finance Institutions in Nigeria

https://www.cbn.gov.ng/OUT/2012/CIRCULARS/FPR/Implementation%20of%20Sustainable%20Banking%20Principles.pdf /

Accessed on 14/05/2025

[3] Championing Climate Tech in Africa: Seedstars Africa Ventures’ Strategic Investments in Beacon Power Services;

[4] https://businesspost.ng/general/ventures-platform-advocates-creation-of-inclusive-climate-fund

[5] https://energy-utilities.com/investment-and-financing-for-esg-in-nigeria-s-news125005.html?utm

[6] The State of Sustainable Investment in Corporate Nigeria | My Website

Sustainable Finance and ESG Reporting: Driving Positive Change in Markets | Grant Thornton

[7] Ecotutu - Wikipedia

[8] https://thebigdeal.gumroad.com/

[9] How bridging the skills gap can boost Africa's green energy transition | Reuters

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