V3I6P1

Environmental, Social, and Governance (ESG) Practices and Return on Assets of Listed Firms in Nigeria

Ologunwa O.P.^1*

Abstract

This study examines the effect of Environmental, Social, and Governance (ESG) practices on the Return on Assets (ROA) of listed firms in Nigeria. Using panel data from firms listed on the Nigerian Exchange Group (NGX) over the period 2010–2025, the study employs Fixed Effects regression with robust standard errors to address heteroskedasticity and serial correlation (Baltagi, 2013). The ESG framework is decomposed into three dimensions: Environmental (ENV), Social (SOC), and Governance (GOV), alongside control variables of firm size (SIZE) and leverage (LEV). The Hausman specification test confirmed the Fixed Effects Model as the preferred estimator. Findings reveal that composite ESG performance positively and significantly improves ROA (β = 0.421, p < 0.01). At the disaggregated level, Governance exerts the strongest positive effect (β = 0.548, p < 0.01), followed by Environmental performance (β = 0.309, p < 0.01) and Social performance (β = 0.176, p < 0.05). Firm size positively influences ROA, while leverage negatively affects profitability. These results are consistent with Stakeholder Theory, the Resource-Based View, and Social Contract Theory. The study concludes that ESG integration is a strategic value-creating mechanism for Nigerian listed firms and recommends that corporate managers, regulators, and investors prioritize ESG adoption, particularly governance reforms, to improve long-term financial performance.

Keywords:

ESG Practices, Return on Assets, Environmental Performance, Social Performance, Governance Performance, Nigeria, Panel Data, Fixed Effects