ENVIRONMENTAL ACCOUNTING COST AND RETURN ON ASSETS OF SELECTED LISTED FAST-MOVING CONSUMER GOODS IN NIGERIA

Abstract

The pressure on companies' sustainability and discussions about the profitability of environmental investments are increasing. But there is not yet much empirical evidence on the relationship between the individual elements of environmental cost and financial performance and the results are inconsistent and vary by sector. The impact of environmental accounting costs on Return on Assets (ROA) of listed Fast-Moving Consumer Goods (FMCG) companies in Nigeria was investigated using Waste Management Cost (WMC), Community Development Cost (CDC) and Employee Health and Safety Cost (EHSC) as proxies for environmental accounting costs. An ex post facto research design was employed and panel data for the period 2014 to 2024 was used. The robust version of Least Squares (RLS) and Random Effects regression method were used to deal with the outliers and heteroscedasticity, and the Hausman test (p = 0.3244) was used to select the model. The results revealed that WMC had a negative and significant effect on ROA (β = –0.3764, z = –2.0569, p = 0.0397), CDC had a strong positive and highly significant effect (β = 1.0849, z = 9.8396, p = 0.0000), while EHSC showed a negative but statistically insignificant effect (β = –0.0893, p = 0.2275). The overall significance (p < 0.01) and strong explanatory power (R² = 0.8239; 0.9451) were acquired by models. The study found that environmental costs affect the profitability in mixed ways: the community development increases ROA while the waste related costs decrease ROA. Streamlining environmental spending, as well as developing better sustainability reporting systems were suggested, to increase transparency and financial returns.