TerraLex Cross-Border Guide to Cross-Border Guide to ESG and Sustainable Finance

There are not all encompassing statutory environmental, social and governance (“ESG”) disclosure obligations in Nigeria. However, a range of ESG-related guidelines are voluntarily adhered to by organisations in Nigeria depending on the sector the said company operates in.

Yes, there are voluntary ESG disclosures in Nigeria. However, the voluntary ESG disclosures in Nigeria are sector specific. The examples of such voluntary ESG disclosures in Nigeria includes:

1. The Companies and Allied Matters Act 2020 (“CAMA”), which requires directors to consider the environmental impact of company operations and act in the public's best interest.

2. The Nigerian Code of Corporate Governance 2019 (“NCCG”), requires companies to pay adequate attention to sustainability issues including environmental, social, occupational and community health & safety, to ensure successful long-term business performance and project themselves as responsible corporate citizens, contributing to economic development.

3. The Securities and Exchange Commission (“SEC”) Guidelines on Sustainable Financial Principles of 2021 mandates regulated entities to report on their implementation framework for ESG principles and disclose ESG information to the SEC.

4. The Nigerian Stock Exchange's Sustainability Disclosure Guidelines, prescribes that public listed companies should report on relevant ESG disclosures in their annual sustainability reports.

5. The Climate Change Act 2021 commits Nigerian entities to achieving net-zero emissions by 2060 and requires private entities to establish measures for carbon emission reduction and designate an environmental sustainability officer. Non-compliance with these obligations incurs fines.

There are no particular frameworks being used for ESG disclosures in Nigeria. However, the United Nations' Sustainable Development Goals and the Principles for Responsible Investment covers areas such as information on carbon emissions levels (particularly for manufacturing companies), adoption of green energy practices, promotion of gender equity and inclusion, safeguarding human rights, supporting social welfare initiatives, and implementing waste recycling programs, among other areas.

The key statutory ESG obligations requiring actions other than disclosures in Nigeria include the following:

a. The Constitution of the Federal Republic of Nigeria 1999 (as amended) includes ESG directive principles in Chapter II, which outline the expectations for government actors exercising legislative, executive, and judicial powers.

b. The Climate Change Act 2021, aims to achieve low greenhouse gas emissions through inclusive green growth and sustainable economic development.

c. The Environmental Impact Assessment Act 2004, mandates the conduction of environmental impact assessments for projects likely to significantly affect the environment.

d. The Harmful Waste (Special Criminal Provisions) Act criminalizes activities related to the disposal of harmful waste.

e. The Companies and Allied Matters Act 2020, imposes environmental obligations on directors of companies incorporated in Nigeria, requiring them to consider the impact of their operations on the environment.

f. The Federal Competition and Consumer Protection Act 2018, through the Federal Competition and Consumer Protection Commission, protects consumer rights and places an obligation on the manufacturers, importers, distributors and supplier of goods and services to contribute to sustainable development of Nigeria.

g. The Petroleum Industry Act 2021, which regulates the oil and gas industry, places the responsibility of environmental and social sustainability in host communities on the oil & gas corporations.

h. The Nigerian Sustainable Banking Principles require financial institutions to balance environmental and social risks with business opportunities.

i. The Nigerian Sustainable Finance Principles which aim to achieve economic prosperity while ensuring environmental protection and social development in the Nigerian capital market.

No, the Nigerian ESG rules only applies in the Nigerian jurisdiction. However, foreign entities incorporated in Nigeria are bound by the ESG obligations.

In Nigeria, there are no specific regulations solely focused on regulating advertising with ESG claims by companies. However, general advertising regulations and consumer protection laws apply to all types of advertisements, including those related to ESG. The Advertising Practitioners Council of Nigeria (APCON) oversees advertising practices and ensures adherence to ethical standards, truthfulness, and fairness. In addition, companies are also expected to comply with general advertising guidelines set by APCON. It is important for companies to ensure that any claims or statements related to their ESG practices in advertisements are accurate, verifiable, and not misleading to avoid potential legal consequences under consumer protection laws as provided by the Federal Competition and Consumer Protection Act.

Nigeria does not have a general legal framework or specific obligations for ESG practices that must be imposed on suppliers. However, the Federal Competition and Consumer Protection Act, through the Federal Competition and Consumer Protection Commission provides certain obligations that must be adhered to by suppliers and should be observed in supplier contracts.

The shareholders/ investors can hold the company liable for the performance of positive ESG obligations imposed on the company by its regulators in the event that such obligations cause a loss to the shareholders/investors. However, the said company can rely on the performance of its obligations in good faith to the regulator as a defence to any actions instituted by the shareholders/investors.

Yes, the shareholders/ investors can hold the company liable for its non-compliance with the laid down ESG obligations imposed by the regulators for the benefit of society at large. Hence, it is crucial for the company to ensure adherence to relevant ESG obligations, in order to safeguard the company's shareholders/investors interest thus mitigating the potential risks associated with liability.

Yes, the company can be held liable for its non-compliance with the requisite ESG obligations that affect the interest of its customers, creditors, or other affected parties. The said customers, creditors or other affected parties can bring an action in a competent court of law to claim damages or specific performance against the company for its failure to comply with the relevant ESG obligations. An example of instances where this has occurred is the oil and gas sector, where host communities have instituted actions against the oil and gas companies for environmental pollution and have gone ahead to win huge sums of money as damages.

There is no uniform ESG rule that applies to Nigeria as a whole but there are various regulations/guidelines which are sector specific various that provide requirements that are meant to be followed to achieve the ESG goals. Such regulations are listed in number 4 above.

There are no statutory frameworks that prohibit or restrict companies or entities in Nigeria from pursuing ESG initiatives. Rather, laws are being promulgated or amended to promote sustainable practices and responsible business conduct to manage environmental and social risks.

There are no statutory finance and investment frameworks in Nigeria. However, there are certain guidelines from the regulatory authorities that can act as a sustainable finance and investment framework. They include the Central Bank of Nigeria Sustainable Banking Principles 2012, Nigerian Code of Corporate Governance 2019, Nigerian Stock Exchange Sustainability Disclosure Guidelines 2019, the Companies and Allied Matters Act 2020 and the Securities and Exchange Commission Sustainable Finance Principles 2021.

This has been answered in question 15 above.

Yes, financial institutions are required under the existing guidelines stated in question 15 above, to consider ESG, while making investment decisions.

There are no specific tax benefits to encourage financial institutions to integrate ESG into their investment decisions. However, where companies are involved in corporate social responsibility (“CSR”), such expenses are tax deductible from the company’s taxable income.

Currently, Nigeria does not have specific laws or regulations on greenwashing. However, companies engaging in such practices may face legal consequences under existing laws if they violate consumer protection laws or engage in false advertising.

There have been enforcement actions and case laws pertaining to greenwashing whereby the Nigerian Courts have held that misleading advertisement also constitutes misrepresentation in law. This premise was depicted in the case of Sodeinde v. Allen & Anor (2018).

There are currently no legislative and regulatory development in relation to having a legislation dedicated to ESG in Nigeria. However, sector specific regulators will continue to provide guidelines and frameworks that promotes environmental, social, and corporate governance in Nigeria.

There is currently no legislative and regulatory development. However, Potential regulations relating to ESG integration in mergers and acquisitions (M&A) in Nigeria could include requirements for ESG disclosure and conducting ESG due diligence during M&A transactions may be introduced to assess environmental, social, and governance issues. The Federal Competition and Consumer Protection Commission (“FCCPC”) which is the main regulator overseeing M&A approvals may consider integrating ESG factors into the approval process, thus encouraging compliance.