Do ESG Practices Cause Better Financial Performance Among Listed Firms in Nigeria?

This study investigates whether environmental, social, and governance (ESG) practices causally improve financial performance among listed firms in Nigeria, drawing on a robust unbalanced panel dataset of 151 firms over the period 2011 to 2025. Using firm-level panel regression models — including fixed effects (FE), random effects (RE), and system generalised method of moments (GMM) — the study employs three proxies for financial performance: return on assets (ROA), return on equity (ROE), and Tobin's Q. The ESG composite score and its three sub-pillars (environmental, social, and governance) serve as the primary independent variables, while firm size, leverage, growth opportunities, auditor type, board size, board independence, and industry type are introduced as control variables. The results show that ESG practices exert a statistically significant and positive effect on all three financial performance proxies. Governance scores consistently yield the strongest coefficients, followed by social and environmental dimensions. These findings survive a battery of post-estimation diagnostics, including tests for heteroskedasticity, serial correlation, cross-sectional dependence, and endogeneity. The study contributes to a nascent but growing empirical literature on ESG–financial performance linkages in Sub-Saharan Africa and provides actionable insights for policymakers, regulators, and corporate boards in Nigeria. The evidence firmly supports stakeholder theory and legitimacy theory as the dominant theoretical frameworks governing the ESG–performance relationship in the Nigerian context.