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Influence of Climate-Related Financial Disclosure on Investment Decisions in the Nigerian Capital Market

Abstract

Climate-related financial disclosure has become an increasingly important aspect of corporate reporting as investors, regulators, and other stakeholders seek greater transparency regarding the financial implications of climate change on business operations and long-term organizational sustainability. Climate-related financial disclosures provide information on how organizations identify, assess, manage, and report climate-related risks and opportunities that may affect their financial performance, business strategy, governance, and future cash flows. Globally, the increasing frequency of climate-related events, the transition toward low-carbon economies, and the introduction of international sustainability reporting frameworks, including the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB), have intensified the demand for high-quality climate-related disclosures. These disclosures enable investors to evaluate environmental risks, assess corporate resilience, reduce information asymmetry, and make informed investment decisions. In Nigeria, growing regulatory attention from the Financial Reporting Council of Nigeria (FRCN), the Securities and Exchange Commission (SEC), the Nigerian Exchange Group (NGX), and other financial regulators has encouraged listed companies to strengthen sustainability reporting and environmental disclosures. As Nigeria continues to pursue sustainable economic development and climate resilience, climate-related financial reporting has become increasingly relevant for attracting responsible investment, improving corporate accountability, and enhancing market transparency. Nevertheless, concerns remain regarding the adequacy, consistency, comparability, and credibility of climate-related financial disclosures among listed companies. Limited disclosure practices, inadequate reporting standards, weak institutional capacity, and insufficient stakeholder awareness continue to affect the usefulness of climate-related information for investment decision-making. Although previous studies have examined environmental reporting and sustainability disclosures, empirical evidence regarding the influence of climate-related financial disclosure on investment decisions in the Nigerian capital market remains limited and inconclusive. Against this background, this study investigates the influence of climate-related financial disclosure on investment decisions in the Nigerian capital market. The study is anchored on Stakeholder Theory, Signaling Theory, and Legitimacy Theory. Stakeholder Theory posits that organizations create long-term value by addressing the information needs and expectations of diverse stakeholder groups, including investors, regulators, creditors, employees, and society. Signaling Theory explains that comprehensive climate-related financial disclosures serve as positive signals of sound corporate governance, effective risk management, environmental responsibility, and long-term financial sustainability, thereby influencing investors' perceptions and investment decisions. Legitimacy Theory argues that organizations disclose climate-related information to demonstrate compliance with societal expectations, maintain legitimacy, and secure continued access to critical economic resources. Collectively, these theoretical perspectives provide a comprehensive framework for explaining the relationship between climate-related financial disclosure and investment decisions in the Nigerian capital market. The study adopts a quantitative research design using a structured questionnaire administered to institutional investors, individual investors, financial analysts, stockbrokers, fund managers, investment advisers, portfolio managers, sustainability professionals, and other participants in the Nigerian capital market. A stratified random sampling technique will be employed to ensure adequate representation of respondents from investment firms, pension fund administrators, insurance companies, stockbroking firms, asset management companies, commercial banks, and other financial institutions. Primary data collected from respondents will be analyzed using descriptive statistics to summarize respondents' demographic characteristics and perceptions regarding climate-related financial disclosure and investment decision-making. Structural Equation Modeling (SEM) will be employed to examine the influence of climate-related financial disclosure on investment decisions. The measurement model will be evaluated using Cronbach's Alpha, Composite Reliability (CR), Average Variance Extracted (AVE), and Confirmatory Factor Analysis (CFA) to establish the reliability and validity of the research instrument. Additional diagnostic tests, including multicollinearity assessment, common method bias analysis, and model fit indices such as the Comparative Fit Index (CFI), Tucker-Lewis Index (TLI), Root Mean Square Error of Approximation (RMSEA), and Standardized Root Mean Square Residual (SRMR), will be conducted to ensure the adequacy, consistency, and robustness of the structural model. The study anticipates that climate-related financial disclosure will have a significant positive influence on investment decisions in the Nigerian capital market. Comprehensive climate-related disclosures are expected to improve transparency regarding environmental risks, carbon emissions, climate adaptation strategies, sustainability initiatives, and governance practices, thereby enabling investors to make more informed investment decisions. High-quality climate-related financial reporting is also anticipated to reduce information asymmetry, strengthen investor confidence, improve corporate credibility, and enhance market valuation by demonstrating organizations' preparedness for climate-related risks and regulatory changes. Furthermore, companies providing transparent climate-related disclosures are expected to attract environmentally conscious investors, improve access to long-term capital, strengthen corporate reputation, and reduce perceived investment risk. Investors are therefore expected to place greater value on firms demonstrating effective climate risk management, environmental stewardship, and sustainable business practices. Conversely, inadequate or inconsistent climate-related disclosures may increase uncertainty, weaken investor confidence, elevate perceived investment risk, and reduce the attractiveness of firms within the capital market. Consequently, enhanced climate-related financial disclosure is expected to contribute significantly to more efficient capital allocation, improved investor decision-making, and the sustainable development of Nigeria's capital market. This study is expected to make significant theoretical and empirical contributions to the literature on accounting, corporate finance, sustainability reporting, and investment analysis by providing robust evidence on the relationship between climate-related financial disclosure and investment decisions in the Nigerian capital market. Unlike previous studies that broadly examined environmental reporting or corporate social responsibility disclosures, this research specifically evaluates climate-related financial disclosure as an emerging component of sustainability reporting capable of influencing investor behaviour and capital market efficiency. The findings will provide valuable insights for the Financial Reporting Council of Nigeria (FRCN), the Securities and Exchange Commission (SEC), the Nigerian Exchange Group (NGX), listed companies, investors, financial analysts, asset managers, policymakers, sustainability professionals, professional accounting bodies, and academic researchers regarding the strategic importance of climate-related financial disclosure in promoting transparency, investor confidence, and sustainable investment practices. The study will also provide evidence-based recommendations for strengthening climate-related disclosure frameworks, improving sustainability reporting quality, enhancing regulatory compliance, promoting investor awareness, supporting responsible investment decisions, and fostering sustainable growth and resilience within Nigeria's capital market.

Keywords: Climate-related financial disclosure, investment decisions, Nigerian capital market, sustainability reporting, climate risk, environmental disclosure, investor behaviour, Structural Equation Modeling (SEM), Nigeria, corporate reporting.