Environmental costs and the profitability of listed oil and gas companies in Nigeria

Abstract

This study explores how environmental costs influences the profitability of Nigerian oil and gas firms. It specifically investigates the impact of environmental pollution prevention cost and environmental pollution detection cost, community development cost on return on capital employed. Grounded in stakeholder theory, the research focuses on six of the eight oil and gas companies listed on the Nigerian Exchange Group (NGX), chosen for their complete panel data, over a twelve-year span from 2013 to 2024. Data utilized were obtained from companies' annual reports, and various statistical methods were applied, including descriptive analysis, correlation analysis and Panel Least Squares (PLS) regression using STATA software. Hausman test was carried out to ascertain validity and reliability of data. The study found that environmental accounting metrics, including pollution prevention, pollution detection, and community development costs, significantly improve the return on capital employed (ROCE) of oil and gas companies listed in Nigeria, indicating that such investments enhance profitability and company reputation. Based on these findings, it is recommended that companies allocate more resources to environmental protection, prioritize disclosure of environmental costs in financial reports, and ensure compliance with environmental regulations to strengthen relationships with stakeholders and improve financial outcomes.