Environmental Cost Accounting and Profitability of Nigerian Manufacturing Firms: A Sector-Level Analysis

This study investigates the relationship between environmental cost accounting practices and profitability in Nigerian manufacturing firms, using sector-level analysis across chemicals, food processing, and construction materials industries. Environmental costs, including pollution control expenditure, regulatory compliance costs, and environmental remediation liabilities, have grown in significance as Nigerian environmental regulatory enforcement has gradually strengthened. However, many Nigerian manufacturers fail to systematically account for these costs, leading to distorted product profitability assessments and poor environmental investment decisions. This study uses a mixed-method design, combining content analysis of environmental cost disclosures in annual reports of 25 manufacturing firms for 2019 to 2023 with a survey of 80 environmental and management accountants. Environmental cost accounting quality is assessed using a six-dimension index covering identification, allocation, reporting, and decision integration. Profitability is measured using return on assets and operating margin. Panel data regression with sector fixed effects is applied. Results indicate a U-shaped relationship between environmental cost intensity and profitability, with firms at moderate environmental cost levels showing optimal profitability. Companies that integrate environmental cost data into product pricing and investment decisions demonstrate better long-term profit performance. Sector analysis reveals that chemicals and paints manufacturers are most advanced in environmental cost accounting, while construction materials firms lag significantly. The study concludes that environmental cost accounting improves long-term profitability by enabling informed environmental investment and pricing decisions. It recommends mandatory environmental cost disclosure for all manufacturers above a minimum revenue threshold.

Keywords: environmental cost accounting, manufacturing, profitability, GRI, ESG.