Effect of Environmental Cost on Profitability of Listed Oil and Gas Firms in Nigeria

This study investigates the effect of environmental costs on the profitability of listed Nigerian oil and gas firms over the period 2014 to 2024, with Return on Equity (ROE) employed as the measure of firm performance. The specific objectives of the study are to examine how Environmental Compliance Cost (ECC), Pollution Control Cost (PCC) and Waste Management Cost (WMC) influence Return on Equity (ROE), addressing the growing concern of balancing environmental responsibilities with financial outcomes in the oil and gas sector. The study employed panel data from five listed firms. They are analyzed using panel least squares regression to evaluate the relationship between environmental expenditures and profitability. Findings reveal that Waste Management Cost has a statistically significant negative effect on Return on Equity (β = -0.000611, p = 0.0079), indicating that higher spending on waste management is associated with lower profitability. In contrast, Environmental Compliance Cost (β = 0.000337, p = 0.1324) and Pollution Control Cost (β = 0.000242, p = 0.5389) do not exhibit statistically significant effect on Return on Equity (ROE), suggesting that expenditures in these areas do not immediately constrain firm profitability. Descriptive statistics highlight moderate variability in environmental expenditures and financial performance across the sampled firms, reflecting differences in operational efficiency, management strategies, and sectoral practices. The study contributes to the literature by providing empirical evidence from Nigeria’s oil and gas industry on the differential effects of environmental costs on profitability, emphasizing that not all environmental investments affect financial outcomes equally. The results underscore the importance of adopting strategic and cost-effective environmental management approaches to mitigate the negative financial implications of waste management. The study concludes that integrating environmental management into broader operational and strategic initiatives is essential for enhancing firm profitability and achieving long-term sustainability. The findings offer practical guidance for managers, investors, and policymakers in designing policies and strategies that balance environmental compliance with financial performance in resource-intensive industries.