Carbon Emissions Practices and Organizational Performance of Companies in Nigeria

Abstract

There is growing demand on companies to practice carbon emission reduction strategies that comply with sustainability standards as global climate obligations increase. That is why this study aims to investigate the relationship between carbon emission practices and organizational performance of companies in Nigerian companies. Primary data were obtained using a well-structured questionnaire administered to 384 companies cutting across manufacturing, oil and gas, extractive industries, information technology, and construction/real estate. The variables consist of both financial performance indicators such as income tax, profit and total assets and non-financial performance indicators such as customer loyalty, employee morale, product quality and market share. To achieve the aim of the study, data collected from companies from selected states in the country were analyzed using descriptive statistics, principal component analysis (PCA), multivariate probit regression, quantile regression, two- stage least squares (2SLS) regression and endogenous switching regression. The analysis was done in three stages. First, multivariate probit model was adopted to estimate the determinants of adoption of carbon emission practices using quantile regression for robustness check. It was shown in the findings that organizational type is a strong determinant showing the tendency of construction/real estate firms to adopt carbon emission practices. There is more likelihood for professionals at the higher cadre to adopt carbon emission practices. The second phase involved the use principal component analysis to capture financial performance and non-financial performance indexes which are organizational performance indicators. Two- stage least squares (2SLS) regression was adopted to estimate the effect of carbon emission practices on financial performance of companies and the results showed that adoption of carbon emission practices has a positive influence on companies’ financial performance implying that companies with environmentally friendly activities improve their financial outlook. Nonetheless, adoption of carbon emission practices negatively influences non-financial performance. Lastly, Endogenous Switching Regression (ESR) was used for robustness check so as to ascertain the consistency of the findings, showing that adopters and non-adopters of emission practices experience significantly different performance trajectories. In general, the results highlight two parallel realities; carbon emission practices improve financial performance but also result in short-term non-financial performance trade-offs, especially in capital-intensive industries. Getting Nigerian companies to adhere to national climate targets, sector-specific sustainability regulations, more robust institutional incentives, and professional training are necessary. The study concludes that while carbon emission practices can strengthen financial competitiveness, they impose short-term non-financial trade-offs in the Nigerian context. Policy implications include the need for sector-specific sustainability frameworks, professional training, and financial incentives to companies that adopt the practices. Also, green finance such as green bonds and climate funds should be accessible so as to encourage investment in sustainability practices.