Environmental, Social and Governance (ESG) Score and Corporate financial performance: Evidence from the Nigerian Market

This study investigated the impact of ESG score on the Corporate financial performance of non-financial firms (NFFs) listed in the Nigerian exchange group. In this study disclosure of ESG is considered and quantified using sentence counting (ESG Score) and financial performance is measured by Return on Assets (ROA), Return on Equity (ROE) and Book Value to Equity (BTE) which is a combination of accounting and market-based variables.Findings of the study revealed that the relationship between ESG score and Corporate financial performance in Nigerian’s non-financial firms (NFFs) has a wide landscape. The positive correlations observed between ESG score and ROA/ROE signified the potential for favorable financial outcomes associated with heightened ESG engagement. However, the unexpected negative association between ESG score and BTE introduced complexity to the relationship, indicating a potential trade-off with financial leverage. The implication of these findings is that Nigerian’s non-financial firms need to navigate the incorporation of ESG initiatives judiciously. While reaping potential benefits in terms of ROA and ROE, NFFs should carefully consider the impact it has on financial leverage. This necessitates a strategic approach that balances the social responsibility agenda with the optimization of financial structures. The study recommends NFFs to establish mechanisms for continuous monitoring and evaluation of the impact of ESG practices on various financial indicators. This involves regularly assessing the outcomes of ESG initiatives and making adjustments to ensure they are not mere diversion of companies’ resources.