Environmental Costs Disclosures and Corporate Investment in the Oil and Gas Sector in Nigeria

Abstract

This paper has investigated how environmental cost reporting impacts corporate investment in Nigeria oil and gas industry. In particular, the research examined the impact of environmental remediation/decommissioning cost disclosure, pollution control cost disclosure and environmental conservation /host-community environmental development cost disclosure on investment in property, plant and equipment (IPPE).  The research design was ex-post facto research with secondary data collected via content analysis of yearly reports and published financial statements of seven listed oil and gas companies on the Nigerian Exchange Group between the year 2019 and 2025, which formed a balanced panel of forty-nine firm-years. Descriptive statistical analysis and simple regression analysis were used to analyse data. The results indicated that the disclosure of environmental remediation/decommissioning cost positively and significantly impacted investment in PPE (R = 0.930, R2 = 0.864, p = 0.001) in the oil and gas industry in Nigeria. Pollution control cost disclosure was also positive and significant on investment in PPE (R = 0.824, R 2 = 0.680, p = 0.001) in oil and gas industry in Nigeria. The environmental conservation and host-community environmental development cost disclosure had a positive and significant impact on investment in PPE (R = 0.875, R 2 = 0.766, p < 0.001). The research was able to conclude that the quality of environmental cost disclosure is related to greater long-term capital commitment in listed oil and gas companies in Nigeria as the disclosed firms seem to be more inclined to invest in productive and compliance-related assets. The report has suggested that the listed oil and gas companies must further enhance the quality of the decommissioning, pollution-control and host-community environmental disclosures and align such disclosures with ongoing investments in cleaner, safer and more efficient operating assets.

The strategic importance of environmental reporting has also been intensified by the recent disclosure reforms. GRI Standards (2021) and IFRS Sustainability Disclosure Standards issued by the IFRS Foundation (2023) have driven companies to more systematized sustainability-related reporting, with Nigerian research like Wallace, et al. (2024) and Nnedu, et al. (2025) demonstrating that non-financial disclosures are becoming increasingly evaluated alongside traditional accounting figures Practically, environmental cost disclosure has
come to indicate the manner, in which the management identifies decommissioning liabilities, pollutioncontrol commitments, host-community environmental commitments and conservation efforts. Umanah and Obarolo-Iguobaro (2025) contended that environmental disclosure in the oil and gas industry of Nigeria, ceased to be a peripheral PR practice, but rather a governance comment that reflects on profitability discipline, risk exposure and management reaction to stakeholder scrutiny.

Investment in property, plant and equipment often reflects the corporate investment decision in the oil and gas industry. PPE Investment reflects the management desire to invest in production facilities, pipelines, storage systems, pollution-control equipment, safety facilities, modular refining assets, rehabilitation infrastructure and other working assets, which will continue to generate earnings into the future. Kujore and Adegbie (2024) insisted that the quality of disclosure may influence investment behaviour since transparent reporting may decrease the level of information asymmetry and enhance the trust in the stewardship decisions made by the management. In industries where there are significant disclosed environmental commitments, such disclosure can affect the reactive or compliance-based investment that firms undertake or the proactive, strategic investment they make in safer and more efficient assets. Annual investment in PPE therefore offers a viable accounting metric of corporate investment choices in an industry where the fixed assets are the primary mode of operation, and environmental constraints cannot be isolated of capital planning.

Empirical results based on Nigeria indicate that variables of environmental accounting are significant in performance, market value and sustainability performance, but the nature and strength of the relationship are yet to be resolved. Green (environmental) accounting cost disclosure was also found to impact differently on some of the performance indicators of oil and gas firms as reported by Odum and Arinomor (2023), and environmental expenditure disclosed was found to be applicable to market value in listed oil and gas firms as reported by Oxbulafor, et al. (2025). Halilu (2025) also indicated that the market performance of oil and gas companies listed on the Nigerian market had an implication on ESG disclosure. Nevertheless, the majority of Nigerian research continues to focus on profitability or market value and the relationship between environmental cost disclosure and capital commitment per se has received minimal attention. This creates a distinct gap as companies can comply with environmental requirements not just by manipulating earnings or by providing narrative reports, but also by investing actually annually in productive and compliance-related assets.