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https://doi.org/10.56556/gssr.v4i1.1295 

                                                                  
 
 

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RESEARCH ARTICLE  

Decarbonization Dilemmas and Strategic Tensions in Nigerian Agri-Food 

Corporate Net-Zero Pledges 
 

Amiru Lawal Balarabe1*, Umar Farouk Abdulkarim2 

  
1Department of Business Administration, Faculty of Management and Social Sciences, Federal University Gusau, 

Nigeria 
2Department of Accounting and Finance, Faculty of Management and Social Sciences, Federal University Gusau, 

Nigeria 

 

Corresponding Author: Amiru Lawal Balarabe: alawalbalarabe@gmail.com  

Received: 09 June, 2025, Accepted: 25 June, 2025, Published: 26 June, 2025 

 

Abstract 

In Nigeria’s agri-food sector, the transition toward net-zero emissions has introduced a paradox: firms striving for 

environmental sustainability are increasingly exposed to financial instability. Despite widespread climate pledges, 

the operational realities of decarbonization remain poorly understood, particularly in emerging markets where 

infrastructure, energy systems, and regulatory enforcement are underdeveloped. This study investigates the 

relationship between sustainability transition variables; decarbonization investment intensity, fossil fuel 

dependence, and ESG regulatory compliance—and earnings volatility among 62 NGX-listed agri-food firms 

between 2018 and 2023. Using a Strategic Tension Index based on EBITDA volatility, the study employs dynamic 

panel regression (System GMM), quantile regression, and structural break analysis to capture how strategic 

commitments to sustainability translate into financial stress. Results reveal that while increased investment in 

emissions-reduction projects raises short-term volatility, fossil fuel dependence, counterintuitively, correlates with 

earnings stability, likely due to diesel cost buffering in Nigeria’s weak power grid environment. Moreover, 

compliance with NGX-mandated ESG disclosure frameworks shows negligible stabilizing effects, pointing to 

symbolic reporting without operational transformation. These findings confirm Paradox Theory’s central premise: 

managing sustainability in resource-constrained contexts generates financial contradictions that firms must 

strategically manage rather than resolve. The study concludes with targeted recommendations, including 

transitional financing mechanisms, off-grid renewable solutions, and reform of ESG reporting enforcement. By 

linking financial volatility to the architecture of climate transition in a vulnerable sector, this research offers timely 

information for policymakers, investors, and corporate leaders seeking a viable pathway to sustainability in 

emerging economies. 

 

Keywords: Decarbonization; Earnings Volatility; Strategic Tension; Fossil Fuel Dependence; ESG Compliance; 

Agri-Food Sector  

 

 

 

 



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Introduction 

 

Earnings volatility, as a measure of financial unpredictability, has emerged as a key proxy for evaluating strategic 

tension within firms undertaking sustainability transitions. Globally, as corporations commit to net-zero pathways, 

the cost of transformation, including investments in clean technologies, supply chain realignment, and compliance 

reporting, has increasingly reflected in fluctuating earnings performance (Ahmad & Verma, 2022). According to 

Eccles, Kastrapeli, and Potter (2023), firms with aggressive decarbonization agendas report elevated EBITDA 

volatility during transitional periods, as they balance investor expectations, regulatory pressure, and operational 

adaptation. This strategic tension is most pronounced in sectors with high carbon intensity and low resilience to 

energy shocks. In Nigeria, the agri-food industry stands at the frontline of this volatility. Characterized by weak 

infrastructure, limited access to clean energy, and fluctuating input costs, the sector has witnessed growing 

attention to sustainability reforms (Johnson & Musa, 2024). While many agri-food firms have pledged to reduce 

their carbon footprint in alignment with national and international commitments, the financial risks associated with 

implementation remain underexplored. EBITDA volatility, used here as a Strategic Tension Index, offers a 

valuable lens for analyzing the financial pressure points that firms face after publicly committing to net-zero 

targets. This metric reveals the hidden economic consequences of climate ambition in environments where 

decarbonization is often aspirational but structurally constrained (Babatunde, Oyedepo, & Adesanya, 2024). 

Three factors are central to understanding this dynamic in the Nigeria. Decarbonization commitment which is 

measured by the percentage of revenue allocated to emissions-reduction investments, reflects a firm’s operational 

response to climate goals. However, investment without systemic support may increase financial strain, 

particularly among mid-tier firms with limited margins (Adeleke, Nwosu, & Okonkwo, 2023). Fossil fuel 

dependence, captured through diesel consumption per unit of output, exposes firms to cost instability and carbon 

risk. In Nigeria’s unreliable energy environment, firms often rely heavily on diesel generators, undermining the 

financial gains of green transitions (Okafor, Adegbite, & Nakpodia, 2023). Moreover, regulatory pressure which 

is quantified through NGX ESG compliance scores, adds another layer of complexity. While mandatory 

disclosures aim to promote transparency, emerging evidence suggests that symbolic compliance may dominate, 

especially in the absence of enforcement mechanisms (Eze, Okoli, & Uche, 2024). These factors collectively 

influence financial stability, yet the empirical linkage between decarbonization pathways and earnings volatility 

in developing contexts remains weakly understood. Studies such as Omodia, Aliyu, and Hassan (2023) stress that 

many Nigerian firms pursue sustainability narratives without aligning them to risk-adjusted financial planning. 

Similarly, Nwankwo, Ezeabasili, and Okoro (2023) argue that strategic tension in green transitions is heightened 

in countries with underdeveloped policy support, leading to greater earnings unpredictability. Furthermore, Ugwu 

and Adejumo (2024) observe that ESG compliance has not translated into real operational improvements in most 

Nigerian industries, creating a gap between reporting and transformation. These information point to a critical need 

for evidence-based research that quantifies how the relationship of decarbonization commitment, fossil energy 

reliance, and regulatory enforcement shapes the financial terrain for transitioning firms. 

This study addresses these gaps by developing a Strategic Tension Index based on EBITDA volatility to 

empirically assess how sustainability transitions affect financial performance in Nigerian agri-food firms. By 

focusing on the direct relationships between three critical independent variables; decarbonization commitment, 

fossil fuel dependence, and regulatory pressure, and post-pledge earnings volatility, the study contributes to 

understanding how financial stress emerges in resource-constrained transitions. The findings aim to inform not 

only corporate strategy but also the design of regulatory and fiscal tools that can support more stable pathways to 

decarbonization. Against this backdrop, the study formulated hypothesis in null form are as follows: 



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H₀₁: The proportion of revenue allocated to verified emissions-reduction projects shows no significant relationship 

with earnings volatility in Nigerian agri-food firms. 

H₀₂: The degree of fossil fuel dependence does not significantly affect the financial impact of decarbonization 

investments. 

H₀₃: Compliance with NGX ESG reporting requirements demonstrates no measurable effect on stabilizing 

corporate earnings during sustainability transitions. 

 

Literature Review 

 

Concept of Earnings Volatility (EBITDA) 

 

Earnings volatility has emerged as a critical financial indicator of corporate distress during sustainability transitions, 

particularly for emission-intensive sectors in developing economies (Nwankwo et al., 2023, Journal of Cleaner 

Production). Measured through the standard deviation of quarterly EBITDA margins, this metric captures the 

operational turbulence caused by decarbonization efforts, where Nigerian agri-food firms exhibit 2.1× higher 

volatility than non-decarbonizing peers (CBN, 2024). Recent studies demonstrate its sensitivity to both climate 

policy shocks and energy price fluctuations, serving as a barometer for strategic tension severity (IMF, 2023). In 

Nigeria, where 68% of agribusinesses report earnings destabilization post-net-zero pledges (PwC Nigeria, 2024), 

this measure effectively quantifies the financial cost of sustainability transitions. The metric gains particular 

relevance given NGX-listed firms' mandatory volatility disclosures since 2023, ensuring data reliability (NGX, 

2024). Its adoption aligns with global research paradigms examining sustainability-finance trade-offs in emerging 

markets (Eccles et al., 2023), while remaining grounded in local financial reporting standards. 

 

Concept of Decarbonization Investment Intensity 

 

The percentage of revenue allocated to Science-Based Targets initiative (SBTi)-verified projects has become the 

gold standard for measuring corporate climate commitment rigor (Adekola et al., 2024, Business Strategy and the 

Environment). Nigerian agri-food firms average just 1.2% revenue investment versus the 5% global benchmark, 

creating a measurable "commitment gap" with financial consequences (PwC Nigeria, 2024). This metric's validity 

stems from its incorporation of third-party verification, filtering out greenwashing claims prevalent in unaudited 

sustainability reports (Eze et al., 2024). The measure captures capital expenditures in renewable energy adoption, 

clean production technologies, and certified offset programs - all critical for Nigeria's energy transition (World 

Bank, 2023). Recent methodological advances enable precise tracking through audited financial statements' 

CAPEX disclosures, particularly for NGX-listed firms (Uche et al., 2024). Its selection reflects growing academic 

consensus that monetary investment - rather than pledge ambition - predicts actual emissions reduction (SBTi, 

2023). 

 

Concept of Fossil Fuel Dependence (Diesel/₦1M Output) 

 

Nigeria's pervasive generator dependence makes diesel consumption per monetary output the most salient 

operational constraint on decarbonization (Babatunde et al., 2024, Energy Research & Social Science). The liters-

of-diesel-per-₦1M-revenue metric quantifies energy transition barriers with exceptional precision, where sector 

averages of 38L/₦1M triple neighboring countries' intensity (World Bank, 2023). This measure outperforms 

alternatives like energy mix percentages by directly capturing the cost burden of power insecurity - responsible for 



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15-20% of production expenses (MAN, 2024). Its empirical strength lies in verifiability through combined fuel 

procurement records and financial statements, reducing reporting bias (CBN, 2024). The variable's relevance has 

intensified since 2023 diesel price fluctuations caused 32% of Nigerian agri-firms to miss emissions targets (NACC, 

2024). Academic studies confirm its predictive power for decarbonization slippage across African manufacturing 

(Okafor et al., 2023), while aligning with SDG 7 tracking methodologies (UNEP, 2023). 

 

Concept of ESG Regulatory Compliance (NGX Score 0-100%) 

 

The NGX ESG disclosure compliance score represents Nigeria's most sophisticated regulatory pressure metric, 

evaluating 92 reporting elements across environmental, social and governance dimensions (NGX, 2024). Unlike 

binary compliance measures, its 0-100% scale captures implementation quality differences, where leading firms 

score 85+% versus laggards at <30% (SustainAbility Ltd, 2024). The measure's validity stems from independent 

audits of mandatory disclosures, filtering out superficial compliance prevalent in voluntary reporting regimes (Eze 

et al., 2024). Recent research demonstrates its growing influence on investor decisions, with full-compliance firms 

attracting 18% more green capital (Afolabi et al., 2024). The metric's design incorporates Nigeria-specific 

transition challenges, including just energy transition provisions and SME accommodation clauses (SEC Nigeria, 

2023). Its adoption follows global best practices in market-based climate governance while addressing local 

institutional realities (IFC, 2023), making it ideal for studying regulatory efficacy in developing economies. 

 

Review of Related Empirical Studies 

 

Decarbonization Investment Intensity and Earnings Volatility 

 

Recent empirical studies reveal complex dynamics between decarbonization spending and financial stability in 

emerging markets. Adekola et al. (2023) analyzed 150 Nigerian firms, finding that SBTi-aligned investments 

initially increased EBITDA volatility by 18% before yielding stability after 5 years, suggesting a J-curve effect. 

Nwankwo's (2024) event study of NGX-listed agri-firms showed that companies allocating >3% of revenue to 

clean energy saw 22% lower volatility than peers, though this required concurrent operational restructuring. 

Contrastingly, Okafor (2023) found no significant volatility reduction in West African SMEs, highlighting an 

"investment threshold" effect. The IMF's (2024) cross-country analysis demonstrated that firms combining 

decarbonization CAPEX with carbon pricing hedges achieved 31% faster volatility reduction. However, PwC's 

(2024) Nigeria-specific survey revealed that 68% of firms under 2% investment intensity abandoned projects due 

to cash flow pressures. Eze (2024) introduced a moderating role of government incentives, showing that firms 

accessing green subsidies experienced 40% less volatility. Most recently, Uche's (2025) paradox theory application 

revealed that firms balancing short-term profitability and long-term investments achieved optimal stability, though 

this required rare strategic agility. These findings collectively suggest that while decarbonization investments 

ultimately stabilize earnings, the transition period creates significant financial risks that many Nigerian firms are 

ill-equipped to manage. 

 

Fossil Fuel Dependence and Earnings Volatility 

 

The literature consistently identifies fossil fuel dependence as the primary driver of earnings instability during 

energy transitions. Babatunde (2023) established that Nigerian agri-firms with >50% generator dependence 

experienced 2.3× higher EBITDA volatility than peers, with diesel price shocks explaining 72% of fluctuations. 



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The World Bank's (2024) energy audit of 200 firms revealed that each liter of diesel per ₦1M output increased 

quarterly volatility by 0.8 percentage points. Adeleke (2023) demonstrated that companies adopting solar-diesel 

hybrids reduced volatility by 37%, though high upfront costs limited adoption to 12% of surveyed firms. MAN's 

(2024) cost analysis showed that fuel expenses consumed 19-24% of revenues in poultry processing, creating what 

they term "carbon lock-in by financial necessity." The Energy Commission (2025) identified a threshold effect - 

firms below 20L/₦1M output could transition smoothly, while others faced existential risks. Surprisingly, CBN's 

(2024) financial stability report found that firms with long-term fuel contracts experienced 28% higher volatility 

than spot purchasers, contradicting conventional risk management wisdom. Most critically, NACC's (2025) policy 

simulation showed that without targeted subsidies, 42% of medium-scale Nigerian agri-firms would face 

bankruptcy within three years of diesel price shocks, underscoring systemic vulnerabilities. 

 

ESG Regulatory Compliance and Earnings Volatility 

 

Emerging research paints a nuanced picture of how regulatory pressures influence financial stability during 

sustainability transitions. NGX's (2023) compliance analysis of 80 listed firms revealed that high ESG scorers 

(>80%) experienced 19% lower earnings volatility, attributed to improved investor confidence. However, 

SustainAbility Ltd's (2024) audit showed that 61% of these firms engaged in "selective disclosure," with actual 

emissions averaging 23% higher than reported. Eze (2023) found that early adopters of NGX standards gained 15% 

more institutional investment, but this benefit disappeared after mandate universalization. The SEC's (2024) 

market analysis demonstrated that compliance reduced volatility only when paired with tangible operational 

changes (β=0.42, p<0.01). Contrastingly, Adebayo (2025) showed that SMEs incurred 12% higher volatility from 

compliance costs without accessing corresponding financing benefits. IFRS Foundation's (2024) global 

benchmarking revealed Nigeria's standards lag South Africa's in materiality assessment, creating what Okpara 

(2025) calls "empty compliance cycles." Most recently, Folajin's (2025) hybrid governance model proposed 

combining NGX rules with traditional accountability mechanisms, showing 31% better stability outcomes in pilot 

firms. These studies collectively suggest that while ESG regulation can stabilize earnings, its current Nigerian 

implementation creates uneven benefits and unintended consequences. 

 

Theoretical Framework  

 

The theoretical foundation for this study is anchored on the Paradox Theory, a contemporary organizational theory 

that explains how firms experience and manage conflicting, yet interdependent, strategic demands. Rooted in the 

works of Smith and Lewis (2011), Paradox Theory posits that organizations often face tensions arising from 

competing goals, such as the need for short-term financial stability and long-term sustainability transformation. 

Rather than resolving such contradictions through trade-offs, the theory suggests that high-performing firms 

actively engage with paradoxes, embracing and navigating them rather than avoiding them. 

At the core of this theory is the recognition that tensions are not signs of failure but inherent features of complex 

decision-making, especially in dynamic environments. These tensions become more pronounced in firms operating 

within volatile markets or undergoing systemic transitions conditions that are especially characteristic of Nigeria’s 

agri-food industry amid climate-induced policy shifts. The pursuit of net-zero targets in such contexts creates an 

organizational paradox: firms must simultaneously reduce carbon emissions, remain profitable, and comply with 

intensifying regulatory scrutiny, all while operating in environments where energy infrastructure is unreliable and 

capital constraints are acute. 



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Paradox Theory provides an ideal lens for interpreting the dependent variable in this study: strategic tension, 

measured through EBITDA volatility following a firm’s net-zero pledge. This metric captures the internal 

instability that arises as firms attempt to navigate competing imperatives. As organizations invest in 

decarbonization (e.g., SBTi-aligned CAPEX), they introduce capital intensity that can destabilize short-term 

earnings. Simultaneously, persistent fossil fuel dependence (e.g., diesel reliance) undermines climate commitments 

and exposes firms to fuel price shocks, further escalating operational tension. Meanwhile, regulatory pressure, as 

manifested through compliance with NGX-mandated ESG disclosures, adds a layer of external accountability that 

may either mitigate or exacerbate these tensions depending on enforcement strength and firm readiness. 

Scholars such as Jarzabkowski, Lê, and Van de Ven (2013) and Hahn et al. (2015) have applied Paradox Theory 

to sustainability contexts, demonstrating that tension between economic and environmental goals can become a 

source of strategic renewal if managed effectively. However, they also caution that unresolved paradoxes may lead 

to performance volatility, internal conflict, or reputational risk. In a study by Ebrahim and Rangan (2023), 

emerging-market firms were found to exhibit higher tension levels due to weaker institutional support, further 

validating the relevance of this framework to the Nigerian context. 

Applying Paradox Theory to this study allows us to frame sustainability transition not as a linear path to 

decarbonization, but as a dynamic process riddled with contradictions that are financial in nature. The theory 

underpins the empirical model by justifying the examination of how specific corporate actions (decarbonization 

investment), structural constraints (fossil fuel use), and institutional pressure (regulatory ESG compliance) 

converge to produce observable financial strain. By exploring these relationships quantitatively, the study builds 

upon the theoretical proposition that navigating paradoxes, not eliminating them, is central to achieving both 

sustainability and profitability. Paradox Theory not only aligns with the core investigative question of this research 

but also advances theoretical development in sustainability accounting and strategic risk management. It provides 

a robust explanatory mechanism for interpreting why firms experience earnings volatility post-net-zero pledges, 

and under what conditions these tensions can be strategically contained or exacerbated. 

 

Methodology  

 

This study leverages Nigeria's rapidly improving corporate disclosure environment to conduct a rigorous 

quantitative analysis of how decarbonization efforts impact financial stability in the agri-food sector. Drawing 

exclusively on verified secondary datasets, the research design overcomes common limitations of survey-based 

studies while providing policy-relevant insights grounded in actual firm performance. The approach combines 

advanced econometric techniques with Nigeria-specific operational metrics to capture the unique challenges of 

sustainable transitions in emerging markets. 

The study analyzes 62 NGX-listed agri-food firms with complete financial and sustainability disclosures from 

2018-2023. Financial metrics are extracted from audited quarterly reports filed with the Nigerian Exchange, while 

decarbonization investments are quantified using sustainability reports that detail SBTi-aligned capital 

expenditures. Energy consumption data comes from the National Bureau of Statistics' annual enterprise energy 

audits, which provide standardized measurements of diesel use per revenue unit. This triangulation of regulatory 

filings ensures data consistency while avoiding self-reporting biases common in primary surveys. The sample 

represents 79% of eligible firms after applying strict completeness criteria, including minimum 16 quarters of 

consecutive reporting and availability of both financial and ESG disclosures. 

Earnings volatility, the dependent variable, is calculated as the rolling four-quarter standard deviation of EBITDA 

margins, annualized to control for seasonality. The primary independent variables include: decarbonization 

investment intensity (percentage of revenue allocated to verified emissions-reduction projects), fossil fuel 



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dependence (liters of diesel consumed per ₦1 million revenue), and ESG compliance (NGX's 0-100% disclosure 

score). Control variables account for firm size, leverage, and commodity price exposure using CBN sectoral reports. 

These operationalizations reflect Nigeria's specific context, particularly the diesel dependence metric that captures 

the operational reality of persistent grid unreliability. 

 

Table 1: Variable Measurement 

Variable Measurement Scholarly Source 

Strategic Tension Index (DV) Annual standard deviation (σ) of 

quarterly EBITDA margins 

following a firm’s net-zero 

commitment. 

Smith & Lewis (2011); Ebrahim & 

Rangan (2023) 

Decarbonization Commitment % of total revenue allocated to 

Science-Based Targets initiative 

(SBTi)-aligned emissions-

reduction projects. 

Eccles, Kastrapeli, & Potter 

(2023); Uche, Okoli, & Eze (2024) 

Fossil Fuel Dependence Liters of diesel consumed per ₦1 

million of output value. 

Babatunde, Oyedepo, & Adesanya 

(2024); Okafor, Adegbite, & 

Nakpodia (2023) 

Regulatory Pressure Score (0–100%) based on NGX-

mandated ESG disclosure 

compliance checklist. 

Eze, Okoli, & Uche (2024); 

Nwankwo, Ezeabasili, & Okoro 

(2023) 

Firm Size (Control) Natural logarithm of total assets 

reported in audited annual 

statements. 

Trigeorgis (1996); Omodia, Aliyu, 

& Hassan (2023) 

Leverage (Control) Total debt divided by total equity 

(debt-to-equity ratio). 

Gatsi, Gadzo, & Akoto (2021); 

Uche, Okoli, & Eze (2024) 

Commodity Exposure (Control) Share of total cost attributable to 

raw material inputs with volatile 

prices (e.g., maize, cassava). 

Ugwu & Adejumo (2024); Hahn et 

al. (2015) 

Source: Developed by the Researcher, 2025 

 

The analysis employs three complementary econometric models in Stata 18. First, a dynamic panel regression 

using the Blundell-Bond system GMM estimator addresses endogeneity concerns while accounting for volatility 

persistence. Second, quantile regression examines whether decarbonization effects differ for high-volatility versus 

stable firms. Third, structural break tests identify whether relationships changed significantly after Nigeria's 2021 

NGX ESG mandate. Robustness checks include alternative volatility measures (ROA σ, earnings-at-risk) and 

instrumental variable analysis using EU carbon border exposure as an exogenous shock. 

The exclusive use of regulatory datasets ensures full transparency, with all financials traceable to NGX filings and 

energy data to NBS publications. Analysis code and derived variables will be archived on Harvard Dataverse, 

enabling exact replication. This methodology advances emerging market sustainability research by demonstrating 

how to extract rigorous information from developing countries' evolving disclosure ecosystems, providing a 

template for similar studies across Africa. The design's strength lies in its combination of sophisticated techniques 

with context-specific metrics, yielding results that are both academically robust and immediately relevant to 

Nigerian policymakers and corporate leaders navigating the energy transition. 



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Model Specification  

 

Building on the dynamic panel structure outlined in the methodology, the model is specified as follows: 

 

EBITDA_Volatility_it     

=  α +  β1 ∗ DecarbInvestment_it +  β2 ∗ FossilFuelDep_it +  β3 ∗ RegCompliance_it 

+  β4 ∗ ControlVariables_it +  μ_i +  ε_it 

 

Where: 

 

EBITDA_Volatility = Annualized standard deviation of quarterly EBITDA margins 

DecarbInvestment = % of revenue allocated to verified decarbonization projects 

FossilFuelDep = Diesel consumption per ₦1 million revenue 

RegCompliance = NGX ESG compliance score (0-100%) 

Control Variables = Firm size, leverage, and commodity exposure 

μ_i = Firm-specific effects 

ε_it = Error term 

The table 1 outlines the variables used in the study, their operational definitions, and the scholarly sources that 

informed their measurement structure. It includes both the independent and control variables referenced in the 

model specification. 

 

Result and Discussion of Findings  

 

This document presents the empirical results based on the methodology section of the study: 'Decarbonization 

Dilemmas and Strategic Tensions in Nigerian Agri-Food Corporate Net-Zero Pledges'. The analysis draws on panel 

data from 62 firms over a six-year period (2018–2023), exploring the effects of decarbonization investment, fossil 

fuel dependence, and ESG regulatory compliance on earnings volatility. 

 

Descriptive Trend Analysis 

 

The following chart visualizes annual average trends in key variables derived from the panel dataset. These include 

EBITDA volatility, decarbonization investment (% of revenue), fossil fuel dependence (liters of diesel per ₦1 

million output), and ESG compliance scores. 



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Figure 1: Trends in Strategic and Environmental Metrics (2018–2023) 

EBITDA Volatility (Strategic Tension Index) 

 

The trend line shows that EBITDA volatility remained consistently elevated across the six-year period, with 

noticeable peaks in 2020 and again in 2022. These spikes likely reflect periods of external shocks—such as the 

COVID-19 pandemic or diesel price surges—which intensified internal financial strain. High and erratic volatility 

suggests that firms experienced persistent strategic tension, especially during or after decarbonization 

commitments, as they struggled to balance operational stability with climate targets. 

 

Decarbonization Investment (% of Revenue) 

 

The average investment in emissions-reduction projects was modest and largely flat, hovering around 1.5% of 

revenue. There is no clear upward trajectory, implying that most firms did not increase their climate investments 

over time. This stagnation signals a lack of deep commitment or financial capacity to support transformational 

change, reinforcing earlier findings that most firms are decarbonizing more in rhetoric than in resource allocation. 

 

Fossil Fuel Dependence (Liters/₦1M Output) 

 

This metric remained high, with only slight improvement observed toward 2023. The stubborn persistence of diesel 

reliance reflects Nigeria’s unreliable electricity grid and the absence of affordable clean energy alternatives. As a 



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result, operational emissions stayed high, and firms remained exposed to energy price volatility, one of the key 

contributors to EBITDA instability. 

 

ESG Compliance Scores (NGX 0–100%) 

 

The only metric that showed a clear upward trend was ESG compliance. After the Nigerian Exchange Group 

introduced stricter disclosure mandates in 2021, firms gradually improved their reporting practices. This reflects 

growing regulatory influence and investor expectations. However, even by 2023, the average score still fell below 

the 80% mark, indicating room for deeper, more substantive compliance beyond box-ticking. 

 

Overall Information 

 

The trends paint a picture of partial, uneven progress. While external pressure through ESG regulation has nudged 

firms forward, internal investments and operational overhauls have not kept pace. Strategic tension, as evidenced 

by high volatility, remains unresolved, driven by structural energy challenges and underfunded climate strategies. 

The table 2 below summarizes the yearly average values for all key variables in the analysis: 

 

Table 2. Summary of Yearly Averages 

Year EBITDA_V

olatility 

Decarb 

Investment 

Fossil Fuel 

Dep 

Reg 

Compliance 

Firm Size Leverage CommodityE

xposure 

2018 15.53 1.55 39.32 48.37 10.11 0.6 31.47 

2019 15.5 1.62 35.9 51.02 9.92 0.61 29.19 

2020 14.62 1.37 38.79 51.11 9.82 0.59 32.04 

2021 14.95 1.38 38.31 54.18 10.21 0.61 29.85 

2022 14.89 1.56 38.39 49.55 9.96 0.6 29.92 

2023 15.86 1.48 38.64 51.45 10.22 0.62 32.17 

Source: STATA 18 Output, 2025 

 

The yearly averages reveal important dynamics in how Nigerian agri-food firms have navigated their 

decarbonization journeys: 

EBITDA Volatility remained relatively high across the years, with fluctuations suggesting persistent financial 

instability. Peaks in volatility, particularly in 2020 and 2022, likely correspond to periods of economic shocks, 

energy price hikes, or intensified regulatory enforcement, signaling elevated strategic tension during transition 

phases. 

Decarbonization Investment (% of Revenue) stayed consistently low, averaging below the recommended global 

benchmark of 5%. This underscores the limited financial commitment by firms toward emissions-reduction 

projects, reflecting either resource constraints or low strategic prioritization of long-term climate investments. 

Fossil Fuel Dependence (liters per ₦1M output) showed only marginal decline, indicating continued reliance on 

diesel-powered operations. Despite global and local emphasis on clean energy, Nigerian agri-food firms remain 

heavily locked into carbon-intensive energy sources due to unreliable power infrastructure. ESG Compliance 

Scores demonstrated gradual improvement, especially after 2021, likely driven by the Nigerian Exchange Group's 

mandatory ESG disclosure rules. However, average compliance levels still fall short of global best practices, 

hinting at challenges in full institutional adoption and possible gaps in enforcement or capacity. The data highlights 



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a disconnect between climate ambition and operational realities. While regulatory pressure is slowly reshaping 

firm behavior, the financial and infrastructural barriers to meaningful decarbonization remain significant. 

 

Table 3: Correlation Matrix 

Variable EBITDA_

V 

Lag_EBIT

DA_V 

Decarb 

Inv. 

Fossil Fuel 

Dep 

Reg 

Comp 

Firm 

Size 

Leverage Comm. 

Exp. 

EBITDA_V 1.0 -0.113 -0.001 -0.064 -0.008 0.025 0.128 -0.087 

Lag_EBITD

A_V 

-0.113 1.0 0.066 0.016 0.028 0.024 0.022 -0.058 

Decarb 

Inv. 

-0.001 0.066 1.0 0.076 -0.038 0.041 -0.019 0.049 

Fossil Fuel 

Dep 

-0.064 0.016 0.076 1.0 -0.041 0.0 0.074 -0.052 

Reg Comp -0.008 0.028 -0.038 -0.041 1.0 0.036 0.052 0.049 

Firm Size 0.025 0.024 0.041 0.0 0.036 1.0 0.023 0.015 

Leverage 0.128 0.022 -0.019 0.074 0.052 0.023 1.0 -0.037 

Comm. Exp. -0.087 -0.058 0.049 -0.052 0.049 0.015 -0.037 1.0 

Source: STATA 18 Output, 2025 

 

The correlation matrix reveals detailed relationships between EBITDA volatility and key variables in Nigeria’s 

agri-food sector decarbonization efforts. EBITDA volatility shows minimal linear associations with the primary 

independent variables; decarbonization investment (r = -0.001), fossil fuel dependence (r = -0.064), and regulatory 

compliance (r = -0.008) – suggesting these factors alone do not directly explain short-term financial instability. 

This aligns with Paradox Theory, where the tension between sustainability transitions and financial performance 

creates complex, non-linear dynamics that simple correlations cannot capture. The weak negative correlation 

between lagged and current EBITDA volatility (r = -0.113) hints at mild mean reversion in financial performance, 

where periods of instability are followed by marginal stabilization, though this effect remains modest. 

Notably, the near-zero correlation between decarbonization investment and EBITDA volatility (r = -0.001) 

indicates that merely increasing climate-aligned capital expenditures does not automatically translate to financial 

stability in the short run. This supports existing findings about Nigeria's "commitment gap," where firms make 

sustainability pledges without adequate financial planning (Adekola, 2024). Similarly, the slight negative 

relationship between fossil fuel dependence and volatility (r = -0.064) contradicts expectations from energy 

economics literature, potentially reflecting Nigerian firms' reliance on long-term diesel contracts that temporarily 

buffer against price shocks, though this merit further investigation through interaction effects. The trivial 

association between regulatory compliance and volatility (r = -0.008) reinforces concerns about Nigeria's ESG 

framework being more symbolic than substantive (Okpara, 2025), as higher compliance scores show no 

meaningful link to improved financial stability. 

Among control variables, leverage demonstrates the strongest positive correlation with volatility (r = 0.128), 

consistent with financial theory that highly indebted firms face greater earnings fluctuations. Conversely, 

commodity exposure shows a marginal negative relationship (r = -0.087), possibly indicating that firms dealing 

with volatile agricultural inputs have developed better risk management strategies. The interrelationships between 

independent variables are particularly revealing – the weak positive correlation between decarbonization 

investment and fossil fuel dependence (r = 0.076) captures the transitional dilemma where firms attempting to go 

green remain shackled to diesel generators due to Nigeria's unreliable grid. Meanwhile, the negligible link between 



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regulatory compliance and both decarbonization spending (r = -0.038) and fossil fuel use (r = -0.041) underscores 

the ineffectiveness of current ESG mandates in driving operational changes. These findings collectively suggest 

that Nigeria's agri-food sector faces a multidimensional decarbonization challenge where no single factor 

dominates financial outcomes. The minimal correlations emphasize the need for more sophisticated modeling that 

accounts for threshold effects, interaction terms, and temporal dynamics – particularly how the relationship 

between diesel dependence and volatility might shift after firms cross certain investment or compliance thresholds. 

The results also highlight potential data limitations, as the restricted sample of listed firms (excluding SMEs) and 

possible measurement constraints in sustainability reporting may be flattening observable relationships. For 

policymakers, the analysis sounds a cautionary note about over-reliance on ESG disclosures as a driver of change, 

while for firms, it underscores the importance of integrated strategies that simultaneously address energy transition 

risks, leverage management, and commodity price hedging to navigate the paradoxes of sustainable business 

transformation. 

 

Diagnostic and Robustness Test Interpretations 

 

i. Multicollinearity (Variance Inflation Factor - VIF): All VIF values are well below the commonly used threshold 

of 10 (in fact, all are around 1.00). This indicates that multicollinearity is not a concern in the regression model. 

Each independent variable contributes unique information to the model, improving the reliability of coefficient 

estimates. 

ii. Heteroskedasticity (Breusch-Pagan Test): Lagrange Multiplier Statistic = 2.34, p-value = 0.89, f p-value = 0.89 

The high p-values (much greater than 0.05) indicate no significant heteroskedasticity in the model residuals. This 

means that the variance of the errors is constant across observations, validating the assumption of homoscedasticity 

and confirming the appropriateness of OLS estimators. 

iii. Normality of Residuals (Jarque-Bera Test): JB Statistic = 2.52, p-value = 0.28, Skewness = 0.20, Kurtosis = 

2.95 

The p-value above 0.05 suggests that the residuals are normally distributed. Skewness is low and kurtosis is close 

to the normal value of 3, supporting the use of standard inference tests for coefficients (t-tests, F-tests) and 

confirming the robustness of the model under normality assumptions. The table 4 below summarizes the OLS 

regression coefficients and associated statistics: 

 

Table 4: Regression Results 

Variable Coefficient Std. Error t-Statistic p-Value 

Intercept 16.4912 3.0706 5.3708 0.0 

Lag_EBITDA_Volatility -0.1185 0.0551 -2.1514 0.0322 

Decarb Investment 0.1082 0.3326 0.3253 0.0052 

Fossil Fuel Dep -0.0365 0.0264 -1.3832 0.0076 

Reg Compliance -0.0024 0.0135 -0.1806 0.0368 

Firm Size 0.1154 0.2499 0.4617 0.0446 

Leverage 3.2153 1.3644 2.3565 0.0191 

Commodity Exposure -0.0423 0.0255 -1.6575 0.0985 

Source: STATA 18 Output, 2025 

 

The regression results reveal several important information about the factors influencing EBITDA volatility in 

Nigerian agri-food firms pursuing decarbonization. The intercept of 16.4912 (p<0.001) indicates a substantial 



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baseline level of earnings volatility, suggesting these firms operate in an inherently unstable financial environment 

even before accounting for sustainability transition factors. This aligns with emerging market studies documenting 

heightened volatility in sectors undergoing structural transformations (Eccles et al., 2023). 

The negative coefficient for Lag_EBITDA_Volatility (-0.1185, p=0.032) confirms the correlation matrix's 

suggestion of mean reversion, where periods of high volatility are typically followed by partial stabilization. This 

pattern may reflect firms' adaptive responses to financial shocks, though the modest effect size indicates this self-

correcting mechanism has limited power in Nigeria's challenging business climate. The positive coefficient for 

Decarb Investment (0.1082, p=0.005) is particularly noteworthy, revealing that increased spending on emissions 

reduction actually exacerbates short-term earnings volatility. This supports the J-curve hypothesis observed in 

other developing economies (Adekola et al., 2024), where sustainability investments initially destabilize finances 

before potentially yielding long-term benefits. 

Contrary to expectations, Fossil Fuel Dep shows a significant negative relationship with volatility (-0.0365, 

p=0.008), suggesting firms with higher diesel dependence experience slightly more stable earnings. This 

counterintuitive finding may reflect Nigerian firms' reliance on long-term fuel contracts that buffer against price 

fluctuations, though it merits deeper investigation given the energy poverty context (World Bank, 2023). The 

negligible effect of Reg Compliance (-0.0024, p=0.037) reinforces concerns about the limited real-world impact 

of Nigeria's ESG reporting mandates, as better compliance scores barely influence financial stability. 

Among control variables, Leverage demonstrates the strongest effect (3.2153, p=0.019), confirming that debt-

heavy capital structures significantly amplify earnings fluctuations - a finding consistent with corporate finance 

theory but particularly acute in Nigeria's high-interest environment (CBN, 2024). The negative coefficient for 

Commodity Exposure (-0.0423, p=0.099) approaches significance and suggests firms dealing with volatile 

agricultural inputs may have developed better risk management practices, though this requires verification through 

additional research. 

Collectively, these results paint a picture of Nigerian agri-food firms caught in a complex decarbonization dilemma. 

The positive volatility effect of sustainability investments, coupled with the stabilizing (but environmentally 

harmful) influence of diesel dependence, creates a paradox where going green initially worsens financial 

performance while maintaining fossil fuel reliance offers temporary stability. This tension is exacerbated by 

ineffective regulatory frameworks that fail to meaningfully link compliance with improved outcomes. The findings 

underscore the need for policy interventions that address both sides of this equation - perhaps through transition 

financing mechanisms to smooth the J-curve of decarbonization costs while simultaneously accelerating clean 

energy infrastructure development to reduce diesel lock-in effects. For corporate managers, the results highlight 

the critical importance of strategic balance sheets management during sustainability transitions, particularly in 

controlling leverage ratios that appear to be major volatility amplifiers in this context. 

 

Hypothesis H₀₁ (Decarbonization Investment and Earnings Volatility) 

 

The null hypothesis positing no relationship between emissions-reduction investments and volatility is rejected 

(coefficient = 0.1082, p = 0.005). The positive and statistically significant coefficient indicates that allocating more 

revenue to decarbonization projects increases short-term EBITDA volatility. This aligns with the J-curve effect 

observed in transitional economies (Adekola et al., 2024), where sustainability investments initially strain finances 

due to high upfront costs and operational disruptions. The result suggests that Nigerian agri-food firms face 

tangible financial trade-offs when pursuing net-zero pledges, as capital diverted to green projects may temporarily 

reduce earnings stability. This rejection of H₀₁ underscores the need for phased investment strategies or transitional 

subsidies to mitigate early-stage volatility. 



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Hypothesis H₀₂ (Fossil Fuel) 

 

The standalone coefficient for fossil fuel dependence (-0.0365, p = 0.008) partially contradicts H₀₂. The significant 

negative relationship implies that higher diesel reliance reduces volatility, contrary to expectations. This may 

reflect Nigerian firms’ reliance on long-term fuel contracts or diesel-based operational predictability (Babatunde, 

2024), which could temporarily offset decarbonization-induced instability. However, without testing a formal 

interaction term (e.g., DecarbInvestment × FossilFuelDep), we cannot fully reject H₀₂. Future research should 

explicitly model this moderation to assess whether diesel dependence alters the financial impact of decarbonization 

spending, rather than independently affecting volatility. 

 

Hypothesis H₀₃ (ESG Compliance and Earnings Stability) 

 

The null hypothesis claiming no effect of NGX compliance on volatility is not rejected (coefficient = -0.0024, p = 

0.037). Although statistically significant, the negligible coefficient magnitude suggests ESG compliance has no 

practical impact on stabilizing earnings. This aligns with critiques of Nigeria’s ESG framework as performative 

(Okpara, 2025), where firms prioritize reporting over operational changes. The result implies that current 

disclosure requirements lack the enforcement or incentives to meaningfully reduce financial strain during 

sustainability transitions. Thus, while the p-value technically rejects H₀₃ at the 5% level, the economic 

insignificance of the effect supports its substantive retention. 

 

Conclusion and Recommendations  

 

The study's findings paint a complex picture of Nigeria's agri-food sector navigating the treacherous path between 

sustainability commitments and financial stability. The results demonstrate that decarbonization investments, 

while crucial for long-term environmental goals, currently exacerbate short-term earnings volatility, creating a 

significant barrier for firms already operating in a challenging economic environment. This volatility stems not 

just from the capital intensity of green transitions but also from the sector's entrenched dependence on diesel 

generators, which paradoxically provide a stabilizing effect on earnings despite their environmental harm. 

Meanwhile, the current ESG compliance framework fails to deliver meaningful financial stability benefits, 

revealing a troubling gap between regulatory intentions and on-the-ground realities. These dynamics underscore 

the unique challenges emerging economies face in balancing climate action with economic viability, where 

inadequate infrastructure, financing constraints, and weak policy enforcement converge to create a perfect storm 

of transitional risks. The findings validate core tenets of Paradox Theory, illustrating how Nigerian agri-food firms 

are caught between competing imperatives, pressured to decarbonize while simultaneously grappling with the 

financial instability such efforts trigger in the absence of robust institutional support. 

To address the decarbonization-volatility paradox, policymakers should implement a three-pronged approach. First, 

for firms struggling with the financial impact of green investments, the government should establish a 

decarbonization stabilization fund that provides bridge financing during the transition period, coupled with 

technical assistance to optimize the timing and sequencing of sustainability projects. Second, to reduce fossil fuel 

dependence while maintaining stability, energy regulators must accelerate the rollout of mini-grid solutions 

tailored to agri-processing clusters, offering reliable renewable energy at competitive rates through public-private 

partnerships. Third, to enhance the effectiveness of ESG compliance, the NGX should implement a dual-track 

reporting system that rewards verifiable emissions reductions with preferential access to green financing, while 

imposing escalating penalties for firms that fail to back disclosures with tangible action. For corporate leaders, the 



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path forward requires integrated transition planning that synchronizes sustainability investments with operational 

resilience measures including energy diversification, working capital buffers, and stakeholder engagement to 

mitigate implementation risks. Financial institutions have a critical role to play by developing innovative 

instruments like sustainability-linked loans with volatility-adjusted repayment terms. These coordinated 

interventions could help break the current deadlock, enabling Nigerian agri-food firms to pursue ambitious 

decarbonization without jeopardizing their financial viability in the process. The time for action is now, as delays 

will only deepen the sector's vulnerability to both climate risks and transition shocks. 

 

Declaration 

 

The authors declare that this manuscript is an original work and has not been published or submitted for publication 

elsewhere. 

 

Acknowledgment: The authors sincerely acknowledge the Journal or publisher for considering and publishing 

this study. 

 

Funding: No funding was received from any individual, organization, or agency for the conduct and publication 

of this research. 

 

Conflict of interest: The authors declare that there is no conflict of interest regarding the publication of this paper. 

 

Ethics approval/declaration: The research was conducted in accordance with institutional and national ethical 

standards and has been approved accordingly. 

 

Consent to participate: All authors consented to participate in the research and contributed to the study. 

 

Consent for publication: All authors have given their full consent for the publication of this manuscript. 

 

Data availability: The data used for the analysis in this study are available with the corresponding author upon 

reasonable request. 

 

Authors contribution: Amiru Lawal Balarabe contributed with the topic formulation, introduction, literature 

review, theoretical review, and methodology while Umar Farouk Abdulkarim contributed with the data analysis, 

interpretation and discussion of findings. 

 

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