ABSTRACT:
As part of its Social responsibility, a company should be socially committed other than being just profit oriented. Aside from profit maximization, a company is expected to embrace the ESG goal which advocates that the company being a corporate entity should ensure that its activities are in conformity with the Environmental, social and Governance standards thereby ensuring accountability.
The ESG goal presupposes that the activities of a company does not threaten the immediate environment where it operates, its actions recognizes basic frameworks protecting social welfarism and the employees’ welfare too. The management of the company also as advancing the ESG goal should be ethically approved, ruling out any form of corruption or regulatory evasion or such incidental matters.
This is aimed at pushing forward the Sustainable Development goal, making everyone both natural and artificial persons responsible in our ever growing world. This article begs to critically and analytically assess the ESG demands globally made of companies, delimiting it to the Nigerian Legal frameworks.
INTRODUCTION:
The global clamour for the enforcement of ESG Standards keeps growing as the day grows. A renowned professor of corporate governance in Nigeria,Prof. Fabian Ajogwu suggested that companies should strive to adopt the ESG Standards pointing out that such adoption will strengthen the corporate structure of the company and preserve investors’ confidence.
Gone are the days when companies existed just on making profits. They inculcate other sustainable programs and such inculcation usually guide them through to the route of amassing great investment opportunities_A typical example of using one stone to kill two birds denotable in the Nigerian Igbo adage. The primary purpose of this article is to juxtapose the ESG goals and Corporate responsibility, critically examining them on international best standards and the legal fireworks on them in the Nigerian Legal system.
This article basically addresses the question of whether the Nigerian Legal system has recognized this global clamour for the ESG compliance in corporate management and governance. The article through identifying relevant Nigerian legal frameworks will analyze the implications of the ESG principles in the corporate management of companies in Nigeria.
BACKGROUND:
ESG denotes Environmental, Social and Governance. It is a global corporate demand trying to fashion companies in such a way that they’re not just profit minded but also sustainably committed. It shifts the traditional focus of companies from Profit and returns on investments making them to be conscious of their business environment and bringing them to social realization.
This principle got its legislative footings from the Constitution of Federal Republic of Nigeria,1999 (As Amended) particularly in Section 17 which demands that the government should ensure that there’s equal opportunities, freedom, human dignity and a just and humane society. This caters for the Social demands.
Also Section 20 provides for the Environmental objectives demanding that the government has the duty to protect and improve the environment. This is clearly a responsibility placed on the government of Nigeria comprising basically of the Executive, Legislature and Judiciary being the noted arms of government. However, the legal personality of a company is a creation of the government who through legislation bestows the personhood toga on a company recognizing it as an artificial person and establishing its separate legal existence from the directors.
Since companies are creatures of men who wields the power in government, this ESG demands made by the Constitution from the government can be imputed to the creatures of the government including companies existing by the virtue of the power of existence it has gotten from the legislation made by the Legislature _an arm of the government. Of course, the Constitution is recognized as the font et origo and as the numero uno serving as the source of every other law.
The Companies and Allied Matters Act, 2020 jumped on the olive branch of the Constitution as it provides under Section. 305(3) that the directors of a company while carrying on with the activities of the company should ensure that their actions doesn’t impact negatively on the environment where the company is situated.
Clearly, this provision does not create an obligation, advancing the ESG demands; however,it serves as a warning to the directors informing them of the need to ensure that the activities of the company doesn’t cause a depletion of the environment where they’re carrying on business.
To point out the importance of this duty imposed on the directors, subsection 8 of the provision emphasizes on the fact that directors must prioritize this duty and will be held liable for any resulting actions from their breach of this duty. Section. 2 of the Environmental Impact Assessment Act 1992 on the other hand proposes that any project proposed to be built either by a private or public enterprise must undergo the Environmental Impact Assessment to find out the impact on the environment where it is to be built and after conducting this assessment, a detailed report will be submitted to the National Environmental Standards and Regulations Enforcement (NESREA) who after its analysis will either issue an approval certificate or decline the commencement of the project due to its adverse environmental implications.
Nigeria has a litany of legislations acknowledging the ESG goals and this is a great proof that Nigeria is fast rising in meeting the global best standards in Corporate Law development.
THE “ ENVIRONMENTAL” DEMAND OF THE ESG GOAL UNDER THE PURVIEW OF NIGERIAN LEGAL FRAMEWORK.
Companies in Nigeria in compliance with the Environmental goal of ESG ensures that their activities do not abysmally impact on the environment where they operate. This is achievable through proper waste management, adjustment to the global call for climate protection by inculcating the clean energy culture, practicing the carbon budget policy which defines the amount of carbon permissible within a particular time frame.
There are a lot of legal frameworks on this in Nigeria. These laws are aimed at ensuring that the Natural environment is not depleted by the common practices of the organizations and companies who have been from time immemorial major players in our environmental depletion.
It is no news that due to the production function of some companies,they use big plants and mechanical appliances producing large fumes and large waste products both biodegradable and non biodegradable wastes including liquid wastes. Some companies prior to these available legislations in Nigeria leave the fumes and carbon emissions from their company to saturate the environment thereby making it wholly uninhabitable for the citizens.
Some also channel their liquid wastes to water bodies thereby causing water pollution and leading to the death of the water creatures. Some channel their liquid wastes to public gutters, making the environment look unattractive and contributing to air pollution due to the stinks that ooze from such improper waste dumping.
The solid waste products are dumped in public waste dumping sites,contributing to the air pollution in that area. A company should strive, through its activities, to ensure that the environment doesn’t suffer the predicament it creates. They should ensure that wastes from them are further recycled and such recycling can create more investment and business opportunities for the said company. They should advance to championing the cause of climate action as proposed by the Climate change Act , 2021 which has admonished the carbon budget policy as a means of controlling the extent of carbon emissions.
Of a fact, the Water Resources Act of 1993 which is set out to protect our water bodies proposes that before a company or an individual carries out any activity that could impact the quality and quantity of the water, there’s a need to get a license from the Minister of water resources. Companies should desist from Channing waste products to water bodies and that singular act is in contravention with the provisions of the Water Resources Act.
The earth is one thing we all own in common irrespective of where we are and it is our collective responsibility to protect it. Companies should also invest in environmental sustainability projects. The Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC) through different regulations have admonished financial institutions to invest in environmental sustainability projects like green financing and international ethical best standards in protecting the environment. This could be a way of contributing to the climate action clamour.
THE “SOCIAL” DEMAND OF THE ESG GOAL UNDER THE PURVIEW OF NIGERIAN LEGAL FRAMEWORK.
While the company advances its desires towards making profit,it should take cognizance of the welfare of its workers likewise the welfare of the entire community where it operates. This is the fulfillment of its corporate social responsibility. This presupposes that a company or organization respects the fundamental rights of its members, the fundamental rights of its consumers and the members of the society at large.
It also presupposes that it implements fair labour standards and ensures that the welfare of its employees are catered for. This extends to consumer protection, recognizing the basic rights of its consumers in its commercial endeavors.
A lot of legislation in Nigeria has given credence to this responsibility starting from the Factories Act of 1987 which imposes responsibility upon a company for the health, safety and welfare of the factory workmen. We also have the Employee Compensation Act, 2010 providing for adequate compensation for every employee who in the course of delivering his services to his employer sustains injuries through accident or even dies in that course.
The National Health Insurance Authority Act 2022 has certain provisions making healthcare affordable for both the employers and employees. This is an advancement of the welfare of the human elements of the company.
A company should ensure that it treats all genders equally. It should ventilate its structure to accommodate both genders as the Constitution has given everyone a freedom from any form of discrimination. The company and its heads should not violate any of their employees sexually or otherwise; this characterizes the respect for human dignity as enshrined in the Constitution and a company should be concerned about meeting the demands of its consumers ensuring that it delivers durable goods and reliable services to the consumers.
The company should as well recognize that it should bring development to the society where it operates. It can be in the form of constructing roads leading to it or extending the pipe borne water to the residents living around in the area where it operates or attracting the government to pay attention to a surging need of the area where it operates. All these forms part of the social responsibility of a company.
THE “GOVERNANCE” DEMAND OF THE ESG GOAL UNDER THE PURVIEW OF NIGERIAN LEGAL FRAMEWORK.
Every company is expected to adopt Best ethical standards which should reflect in its corporate management. These ethical standards are with respect to the ways in which the directors pilot the company’s affairs,the conduct of the shareholders and the legal and formal relationship that exists amongst the company’s human parastatals.
There’s no full blown legal framework regulating this however,there are guidelines issued by regulatory bodies, advancing this course. Some of these standards are contained in the Nigerian Code of Corporate Governance, 2018 which outlines about 28 broad standards and principles which apply to all private and public companies in Nigeria.
The Nigeria Stock exchange sustainability Disclosure guidelines, 2018 also provides for key governance responsibilities. The guideline focuses on the sustainability of a company and gives a proactive approach towards ensuring that a company embraces sustainability goals.
The basic implication of complying with the ESG directives is that it rebrands a company’s face, putting out the humanity and accountability face of the company to the world other than A mere business enterprise.
It also helps the company in risk management strategy. This is achievable through nipping every possible activity that’ll pose a legal or structural risk to the company by the bud. Once a company observes the ESG goals,they escape every hurdle capable of embracing them if they ignore those goals.
They’re also capable of attracting foreign investment. This is because it has become an international standard that before a potential investor proceeds with investment,they assess the ESG compliance of the company to check the reliability of the company and know if such company is selfishly built on profit maximization other than on sustainability.
CONCLUSION:
The ESG framework has become essential for corporate responsibility worldwide, shifting businesses from profit-driven models to sustainability-focused strategies. In Nigeria, legal frameworks such as the Companies and Allied Matters Act 2020, the Climate Change Act 2021, and the Environmental Impact Assessment Act 1992 support ESG adoption, though enforcement remains a challenge.
Despite progress, gaps in regulatory compliance and corporate reluctance hinder full ESG integration. Strengthening enforcement, raising awareness, and implementing stricter penalties can enhance adherence. Companies that embrace ESG principles will boost their reputation, attract investments, and contribute to sustainable development. ESG is no longer optional but a key driver of corporate success and societal well-being.
REFERENCES:
CHINEDU KEMA AND OLAYEMI LAWAL ‘Operating in a Changing World:A Note on ESGRelated Compliance Obligations for Nigerian Companies’ (2021) <https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://www.dentonsacaslaw.com/-/media/pdfs/insights/2021/june/operating-in-a-changing-world_a-note-on-esg-related-compliance-obligations-for-nigerian-companies.pdf&ved=2ahUKEwi7_-XB38yMAxUlWkEAHSjIHb0QFnoECCMQAQ&usg=AOvVaw2RrrG_odgQZPjgr_naM8jW> Accessed 7th April,2025
General Corporate Advisory team of Udo Udoma & BeloOsagie ‘A Review of ESG Responsibilities of Corporate Entities in Nigeria’ (2024)<https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://uubo.org/wp-content/uploads/2024/06/A-Review-of-ESG-Responsibilities-of-Corporate-Entities-in-Nigeria.pdf&ved=2ahUKEwim0ZGN4MyMAxUPXUEAHYGNJCEQFnoECBwQAQ&usg=AOvVaw2QlYfay8hFhIbmp7bl5eoo> Accessed 7th April,2025
About the Author:
Obiagwu, Sixtus Chidera, is a dedicated final-year law student and LIFINITE at Chukwuemeka Odumegwu Ojukwu University in Anambra State, Nigeria. As a passionate legal writer, he has a passion for exploring emerging legal issues and sharing his insights through writing.