AN EMPIRICAL ANALYSIS OF SUSTAINABILITY REPORTING AND SMALL

AND MEDIUM SCALE ENTERPRISES (SMEs) GROWTH IN NIGERIA

 CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

As an emerging idea and aspiration, sustainability is recently becoming the fastest and most

comprehensive phenomenon across academic, business, and government platforms

(Rockström et al., 2018). Sustainability information is very vital to an organization and to the

general public at large. Sustainable information is becoming as important as the financial

statement because it provides a narrative of a company's impact which cuts across economic,

environmental, social, and governance issues. There is currently no universal agreed

definition for sustainability reporting. However, this concept is generally defined as the

practice of measuring and disclosing sustainability information alongside, or integrated with,

a company's existing reporting practice (Hasan & Yun, 2017). Sustainability reporting also

refers to the disclosure, whether voluntary, solicited, or required, of non-financial

performance information to outsiders of the organization. Generally, sustainability reporting

deals with information concerning environmental, social, economic, and governance issues in

the broadest sense (Global Reporting Initiative, 2024).

Sustainability reporting grows out of both environmental reporting and corporate social

responsibility (CSR). Environmental reporting was pioneered in the late 1980s by companies

in the chemical industry which had serious image problems. CSR has been gaining attention

since the 1960s, while reporting on CSR is fairly a recent trend that has expanded over the

last few decades. Sustainability reporting can be traced back to the late 20th century when

certain concerns about the environmental and social impacts of business activities started

gaining attention. In the 1970s and 1980s, there was a growing demand for businesses to be

transparent about their environmental and social performance. Notable early initiatives
included John Elkington's "Triple Bottom Line" concept in 1994, which advocated for

companies to measure and report their performance in three dimensions: economic,

environmental, and social (Osagioduwa et al., 2023).

The history of sustainability in Nigeria is a story that spans decades, characterized by

complex interplay of socio-economic factors, environmental challenges, and the quest for

sustainable development. This recognition laid the foundation for sustainability reporting

practice in the country. In 2011, the Nigerian Exchange Group (NGX Group) introduced its

sustainability disclosure guidelines. These guidelines were designed to encourage listed

companies to disclose information on their environmental, social, and governance (ESG)

practices. While not specifically focused on sustainability reporting, these guidelines marked

an important step towards promoting transparency and accountability in ESG reporting.

Nigeria became a signatory to the United Nations Global Compact (UNGC) in 2007. The

UNGC encourages businesses to adopt sustainable and socially responsible practices.

Membership in the UNGC has influenced sustainability reporting practices in Nigeria, with

companies aligning their reporting with UNGC principles (United Nations Global Compact,

2021).

There are various types of sustainability reporting which include environmental reporting,

social reporting, economic reporting, integrated reporting, corporate social responsibility

(CSR) reporting, global reporting initiative (GRI) standards, task force on climate-related

financial disclosures (TCFD), and carbon disclosure project (CDP) (Global Reporting

Initiative, 2024). The benefits of sustainability reporting to businesses as a whole include

enhanced transparency, attracting investors, risk management, improved reputation, and

fostering innovation in sustainable practices. Given that sustainability reporting has a strong
impact on the long-term performance of an organization, it is essential that organizations

dedicate both time and resources towards sustainable information and solutions.

Currently, in Nigeria, getting a white-collar job is very hard to come by, and this has made

the educated and the uneducated revert to being self-employed, that is, owning small

businesses. A small-scale business is any business that is privately owned and managed by

the owner, characterized by a small number of employees and low turnover (Kuehl, 2006).

Small and Medium Enterprises (SMEs) are businesses whose personal and revenue numbers

fall below certain limits. In Nigeria, SMEs are divided into micro, small and medium

enterprises based on their workforce and asset base. Micro-enterprises have less than ten

employees and assets worth less than ₦5 million, small enterprises have between ten and

forty-nine employees and assets worth between ₦5 million and ₦50 million, while medium

enterprises have between fifty and two hundred and fifty employees and assets worth

between ₦50 million and ₦500 million (Central Bank of Nigeria, 2019). In Nigeria, SMEs

contribute 48% to the Gross Domestic Product (GDP) of the country and employ over 84% of

the workforce (ThisDay Newspaper, 2021).

According to Muriithi, (2017), SMEs play a significant role in most economies, especially in

emerging markets where 7 out of 10 jobs are created by SMEs. In any given national

economy, SMEs outnumber large companies by a wide margin and also employ many more

people. SMEs contribute to the economic development of developing and developed

countries (Ifekwem & Adedamola, 2016). These businesses are regarded as the pillar of

economic development; hence, SMEs are imperative to the growth of any nation (Masama &

Bruwer, 2018; Miranda & Miranda, 2018). They contribute significantly to employment

generation, income generation, and economic development. Other roles include poverty

alleviation, innovation and entrepreneurship, rural development, social stability, and foreign
exchange earnings. The correlation between sustainability reporting and SMEs can positively

impact the growth of SMEs. Engaging in sustainability reporting allows SMEs to

demonstrate their commitment to social and environmental responsibility, which can attract

customers and investors. Additionally, it may enhance reputation, access to capital, and

operational efficiency, which will, in turn, foster long-term sustainability and growth for

SMEs.

1.2 Statement of the Problem

Sustainability reporting for SMEs involves disclosing environmental, social, and governance

(ESG) practices. While large corporations commonly engage in comprehensive sustainability

reporting, SMEs may, however, face some challenges due to resource constraints, expertise,

and time. Another challenge is that sustainability reporting is a voluntary disclosure.

Some problems have been identified in relation to sustainability reporting and business

owners (Alipour & Rahimpour, 2020). The first problem is that many owners of businesses

seem not to be aware of sustainability reporting as a whole. Secondly, some owners of

businesses are aware of sustainability reporting, but considering their firms' sizes as not big,

felt the impact is not as effective in comparison with big firms. This is the reason they do not

think about developing their activities to cover sustainability reporting. Thirdly, some owners

of businesses are aware of the importance of sustainability reporting, but they lack the

capacity to develop the processes and activities.

There are three challenges identified as facing SMEs (Alipour & Rahimpour, 2020). Firstly,

designing, developing, and planning the activities should attract, satisfy, and keep the

customers. Secondly, adopting sustainability reporting involves a tremendous development

cost for an organization, and lastly, sustainability reporting is a complex process that requires
certain knowledge and skills to implement them. These challenges make owners of SMEs to

shy away from sustainability reporting, while some think about the cost of implementation.

Others seem to think that sustainability reporting is only meant for public listed companies.

According to the Global Reporting Initiative (2021), which produces the world's most widely

used framework for standardizing how businesses report on their sustainability, only 10-15%

of companies using its GRI Sustainability Reporting Standards are SMEs. However, there's a

growing expectation by stakeholders, including investors, commercial partners, and

government, for companies of all sizes to share their reports.

This study, therefore, examined the potential challenges and opportunities associated with

sustainability reporting in relation to SMEs growth in selected states across the six

geopolitical zones in Nigeria.

1.2 Statement of the Problem

Sustainability reporting for SMEs involves disclosing environmental, social, and governance

(ESG) practices. While large corporations commonly engage in comprehensive sustainability

reporting, SMEs may, however, face some challenges due to resource constraints, expertise,

and time. Another challenge is that sustainability reporting is a voluntary disclosure.

Some problems have been identified in relation to sustainability reporting and business

owners (Alipour & Rahimpour, 2020; Stubbs & Higgins, 2018). The first problem is that

many owners of businesses seem not to be aware of sustainability reporting as a whole

(Hasan & Yun, 2017; Namakon & Tinker, 2018). Secondly, some owners of businesses are

aware of sustainability reporting, but considering their firms' sizes as not big, felt the impact

is not as effective in comparison with big firms (Belal & Cooper, 2011; Mokhtar et al., 2016).

This is the reason they do not think about developing their activities to cover sustainability
reporting (Ali et al., 2017). Thirdly, some owners of businesses are aware of the importance

of sustainability reporting, but they lack the capacity to develop the processes and activities

(Mura et al., 2019; Ramdhony & Oogarah-Hanuman, 2021).

These three challenges facing SMEs were identified by Alipour and Rahimpour (2020).

Firstly, designing, developing, and planning the activities should attract, satisfy, and keep the

customers. Secondly, adopting sustainability reporting involves a tremendous development

cost for an organization, and lastly, sustainability reporting is a complex process that requires

certain knowledge and skills to implement them. These challenges make owners of SMEs shy

away from sustainability reporting, while some think about the cost of implementation.

Others seem to think that sustainability reporting is only meant for public listed companies

(Alipour & Rahimpour, 2020; Massaro et al., 2016). According to the Global Reporting

Initiative (2021), which produces the world's most widely used framework for standardizing

how businesses report on their sustainability, only 10-15% of companies using its GRI

Sustainability Reporting Standards are SMEs. However, there's a growing expectation by

stakeholders, including investors, commercial partners, and government, for companies of all

sizes to share their reports (Raucci & Tang, 2020; Villiers & Sharma, 2017). This study,

therefore, examined the potential challenges and opportunities associated with sustainability

reporting for SMEs in the business environment in selected states across the six geopolitical

zones in Nigeria.

1.3 Research Questions

In order to properly analyse the impact of sustainability reporting on the growth of SMEs in

selected states across the six geopolitical zones in Nigeria, the following questions were

raised:
 i. To what extent are Nigerian SMEs engaging in sustainability reporting practices?

ii. What are the key drivers influencing sustainability reporting adoption among Nigerian

SMEs?

iii. How does sustainability reporting impact the financial performance and growth of

Nigerian SMEs?

iv. What are the differences in sustainability attitudes and practices between different

types of SME managers in Nigeria?

1.4 Objectives of the Study

The main objective of this study is to empirically analyse the impact of sustainability

reporting on the growth of SMEs in selected states across the six geopolitical zones in

Nigeria while the specific objectives are to:

i. assess the current state of sustainability reporting practices among Nigerian SMEs.

ii. identify the key factors driving sustainability reporting adoption in Nigerian SMEs.

iii. examine the impact sustainability reporting and financial performance and growth of

Nigerian SMEs.

iv. determine the differences in sustainability attitudes and practices between different

types of SME managers in Nigeria.

1.5 Research Hypotheses

Based on the objectives raised in the study, four hypotheses were developed to guide the

study.

H01: There is no significant engagement in sustainability reporting practices among Nigerian

SMEs.
H02: There are no key drivers influencing sustainability reporting adoption among Nigerian

SMEs.

H03: Sustainability reporting has no significant impact on the financial performance and

growth of Nigerian SMEs.

H04: There are no significant differences in sustainability attitudes and practices between

different types of SME managers in Nigeria.

1.6 Significance of the Study

The impact of sustainability reporting on the growth of SMEs in Nigeria holds significant

implications for various stakeholders, including SMEs themselves, investors, policy makers,

customers, and the broader community. The findings of this study will provide valuable

insights and practical recommendations that can benefit each of these groups in different

ways.

SMEs: For SMEs, the study will shed light on the potential benefits of engaging in

sustainability reporting. By understanding how sustainability reporting can enhance their

reputation, attract investment, and improve operational efficiency, SMEs can make informed

decisions about adopting these practices. The study will also highlight the specific challenges

SMEs face in this area and offer strategies to overcome these obstacles, thereby facilitating

the growth and sustainability of small businesses.

Investors: Investors will gain a clearer understanding of the importance of sustainability

reporting in evaluating the long-term viability and ethical practices of SMEs. The study will

provide evidence on how sustainability reporting can serve as a tool for risk management and

enhance transparency. This information will help investors make better-informed decisions,
potentially leading to increased investment in SMEs that demonstrate strong environmental,

social, and governance (ESG) practices.

Policy Makers: For policy makers, the study offers critical insights into the current state of

sustainability reporting among SMEs in Nigeria. By highlighting the challenges and benefits

of sustainability reporting, the findings can inform the development of policies and

regulations that encourage more SMEs to engage in these practices. Policy makers can use

this data to create supportive environments and incentives that make sustainability reporting

more accessible and beneficial for SMEs, thereby promoting broader economic and social

benefits.

Customers:Customers increasingly prefer to support businesses that demonstrate a

commitment to sustainability. This study will provide consumers with information on how

SMEs are addressing ESG issues, allowing them to make more informed purchasing

decisions. By choosing to support SMEs that engage in sustainability reporting, customers

can encourage more businesses to adopt sustainable practices, contributing to a positive cycle

of environmental and social responsibility.

Academic and Business Researchers: For academic and business researchers, this study

provides a comprehensive analysis of the impact of sustainability reporting on SME growth

in Nigeria. It adds to the existing body of knowledge and offers a foundation for further

research. The findings can be used to develop case studies, comparative analyses, and

theoretical models that explore the relationship between sustainability practices and business

performance in different contexts.

1.7 Scope of the Study

This study focused on the impact of sustainability reporting on the growth of small and

medium enterprises (SMEs) in selected states across the six geopolitical zones in Nigeria.

The SMEs are classified based on the major sectors or industries in the selected states, which

include the fashion industry, tech industry, food industry, educational sector, and the hotels,

among others. The selected states are North-Central: Kwara State - chosen because the

researchers are based in Ilorin, the state capital, providing easier access to data collection;

North-West: Kano State - selected due to its status as a major commercial and industrial hub

in the region, with a vibrant SME sector; North-East: Bauchi State - Bauchi has a diverse

economy with significant SME activities in agriculture, mining, and manufacturing, making it

a suitable representation of the region; South-West: Lagos State - As the commercial capital

of Nigeria, Lagos has a thriving SME landscape across various sectors, making it an ideal

choice for this study; South-East: Anambra State - known for its entrepreneurial spirit and

vibrant SME ecosystem, particularly in the manufacturing and trading sectors; and South-

South: Rivers State - With its strategic location and robust oil and gas industry, Rivers State

has a dynamic SME sector catering to various support services. The selection of these states

across the six geopolitical zones ensures a comprehensive representation of the Nigerian

business environment and captures the diverse challenges and opportunities faced by SMEs

in different regions of the country.

1.8 Plan of the Study

The research project is divided into five chapters. Chapter one discussed the introduction, and

it focused on the background to the study, statement of the problem, research questions,

objectives of the study, hypotheses of the study, significance of the study, and scope of the

study. Chapter two is on review of literature, and it detailed conceptual and theoretical

review, empirical evidence, and gaps identified from the literature reviewed. The next chapter
focuses on methodology, and the research design, population of the study, sampling

techniques, method of data collection, method of data analysis, and model specification were

dealt with. Chapter four discusses data presentation, analysis, and interpretation of results,

while the last chapter focuses on summary, conclusion, and recommendations based on the

findings from the research.

 CHAPTER TWO

LITERATURE REVIEW

2.1 Conceptual Review

2.1.1 Sustainability Reporting

The concept of sustainability reporting has emerged as a crucial aspect of corporate

responsibility and transparency in the modern business landscape. Sustainability reporting,

also known as non-financial reporting, is a comprehensive approach to disclosure that

encompasses an organization's environmental, social, and economic performance (Calabrese

et al., 2021; Yadava & Sinha, 2022). It is a voluntary practice that allows organizations to

communicate their sustainability strategies, initiatives, and impacts to stakeholders

(Venturelli et al., 2022; Maroun, 2020). The roots of sustainability reporting can be traced

back to the broader framework of corporate social responsibility (CSR) and the triple bottom

line (TBL) approach, which emphasizes the integration of environmental, social, and

economic considerations into business practices (Montiel, 2018).

According to the Global Reporting Initiative (GRI), a pioneering organization in promoting

sustainability reporting, it is defined as "a process that assists organizations in setting goals,

measuring performance, and managing change towards a sustainable global economy -- one

that combines long-term profitability with social responsibility and environmental care"

(GRI, 2021). Sustainability reporting aims to provide transparency and accountability

regarding an organization's sustainability performance, enabling stakeholders to make

informed decisions about the organization's impact on the environment, society, and the

economy (Calabrese et al., 2021; Venturelli et al., 2022).

The concept of sustainability reporting has evolved over time, with various frameworks and

guidelines emerging to standardize and facilitate the reporting process (Manes-Rossi et al.,

2018; Venturelli et al., 2022). These frameworks provide organizations with guidance on

what information to disclose, how to measure and report on specific sustainability indicators,

and how to ensure the credibility and comparability of their reports. Some of the widely

adopted frameworks include the Global Reporting Initiative (GRI) Standards, Integrated

Reporting (IR), Sustainability Accounting Standards Board (SASB) Standards, and the Task

Force on Climate-related Financial Disclosures (TCFD) framework.

The Global Reporting Initiative (GRI) Standards are considered the most widely used

guidelines for sustainability reporting globally (GRI, 2021). These standards provide a

comprehensive set of principles and indicators for organizations to report on their economic,

environmental, and social impacts (Brown et al., 2020; Manes-Rossi et al., 2020). The GRI

Standards are designed to be universally applicable to organizations of all sizes and sectors,

offering a standardized approach to sustainability reporting.

Integrated Reporting (IR) is another approach that has gained prominence in recent years. It

combines financial and non-financial information into a single report, providing a holistic

view of an organization's performance and value creation (Vitolla et al., 2020; Willows &

van der Laan, 2022). The International Integrated Reporting Council (IIRC) developed the

Integrated Reporting Framework to guide organizations in integrating financial and

sustainability information, thereby enhancing transparency and stakeholder understanding of

the organization's ability to create value over time.

The Sustainability Accounting Standards Board (SASB) Standards are industry-specific

standards that guide the disclosure of financially material sustainability information in

mandatory filings (SASB, 2021; Casonato et al., 2019). These standards are designed to help
organizations identify and report on sustainability topics that are relevant and financially

material to their specific industry, enabling investors and other stakeholders to make well-

informed decisions.

The Task Force on Climate-related Financial Disclosures (TCFD) framework provides

recommendations for companies to disclose climate-related risks and opportunities, enabling

stakeholders to assess the potential financial impacts of climate change on the organization

(TCFD, 2021; Willows et al., 2022). The TCFD framework emphasizes the importance of

transparent and consistent disclosure of climate-related information, helping organizations to

better manage and communicate their climate-related risks and opportunities.

While sustainability reporting has traditionally been associated with large corporations, it is

increasingly recognized that small and medium-sized enterprises (SMEs) can also benefit

from adopting these practices (Corazza, 2019; Trencansky et al., 2022). SMEs play a crucial

role in economic development, employment generation, and innovation (Muriithi, 2020;

Tetteh & Frempong, 2020). By engaging in sustainability reporting, SMEs can demonstrate

their commitment to responsible business practices, enhance their reputation, attract

investors, and foster long-term growth (Cantele & Zardini, 2020; Trencansky et al., 2022). As

the demand for transparency and accountability in business practices continues to grow,

sustainability reporting is becoming increasingly important for organizations of all sizes,

including SMEs. By communicating their sustainability performance, SMEs can not only

contribute to sustainable development but also gain competitive advantages and position

themselves for long-term success in an ever-evolving business environment.

2.1.2 Small and Medium-sized Enterprises (SMEs)

Small and medium-sized enterprises (SMEs) are widely recognized as crucial drivers of

economic growth, innovation, and employment in both developed and developing countries

(Tetteh & Frempong, 2020; Wamba et al., 2020). These enterprises play a vital role in

fostering entrepreneurship, creating job opportunities, and contributing to the overall

economic development and social well-being of communities (Muriithi, 2020; Stoian et al.,

2020).

The definition of SMEs varies across countries and organizations, as it is typically based on a

combination of factors such as the number of employees, annual turnover, or asset value

(Muriithi, 2017; Stoian et al., 2020). In Nigeria, the Central Bank of Nigeria (CBN) has

established a widely accepted definition of SMEs based on their asset base and number of

employees (CBN, 2019). According to the CBN, micro-enterprises are defined as having less

than 10 employees and an asset base of less than ₦5 million, small enterprises have between

10 and 49 employees and an asset base of ₦5 million to ₦50 million, while medium

enterprises have between 50 and 199 employees and an asset base of ₦50 million to ₦500

million (CBN, 2019).

The significance of SMEs in the Nigerian economy cannot be overstated. These enterprises

contribute substantially to the country's Gross Domestic Product (GDP), employment

generation, income generation, and overall economic development (Masama & Bruwer,

2018; Taiwo et al., 2022). According to recent reports, SMEs account for a significant

percentage of Nigeria's GDP and employ a large portion of the country's workforce,

highlighting their pivotal role in driving economic growth and job creation. Despite their

crucial importance, SMEs in Nigeria face numerous challenges that can hinder their growth

and development. Limited access to finance, inadequate infrastructure, weak institutional

support, and limited managerial and technical skills are among the key obstacles faced by
SMEs in the country (Essien, 2020; Taiwo et al., 2022). These challenges often restrict the

ability of SMEs to expand, innovate, and fully capitalize on their potential to contribute to the

nation's economic prosperity. In recent years, there has been a growing recognition that

engaging in sustainability reporting practices can help SMEs address some of these

challenges and unlock new growth opportunities (Cantele & Zardini, 2020; Trencansky et al.,

2022).

2.1.3 Growth of SMEs

The growth of small and medium-sized enterprises (SMEs) is a crucial aspect of economic

development, as it contributes significantly to job creation, innovation, and overall economic

prosperity (Mura et al., 2019; Tetteh & Frempong, 2020). The growth of SMEs can be

measured and evaluated using various indicators, including increased sales revenue,

profitability, market share, employee headcount, and asset value (Bakar et al., 2021; Sitharam

& Hoque, 2019).

The growth of SMEs is influenced by a multitude of factors, both internal and external.

Internal factors include entrepreneurial capabilities, innovation, access to finance,

management skills, and organizational culture (Gupta et al., 2020; Eniola & Entebang, 2019).

External factors encompass market conditions, government policies, availability of

infrastructure, access to technology, and legal and regulatory frameworks (Gupta et al., 2020;

Eniola & Entebang, 2019). These internal and external factors interact in complex ways,

presenting both opportunities and challenges for SMEs seeking to achieve sustainable

growth.

In recent years, there has been increasing recognition that adopting sustainable business

practices and engaging in sustainability reporting can contribute positively to the growth of
SMEs (Cantele & Zardini, 2020; Trencansky et al., 2022). Sustainability reporting can

support the growth of SMEs in several ways:

Reputation and Brand Image: By demonstrating their commitment to environmental,

social, and governance (ESG) practices through sustainability reporting, SMEs can enhance

their reputation and brand image (Cantele & Zardini, 2020; Trencansky et al., 2022). A strong

reputation and positive brand image can make SMEs more attractive to customers, investors,

and potential partners, leading to increased sales, access to new markets, and improved

competitiveness.

Access to Finance: Investors and financial institutions are increasingly considering

sustainability factors in their decision-making processes (Calabrese et al., 2021; Venturelli et

al., 2022). SMEs that engage in sustainability reporting and demonstrate responsible business

practices may have better access to finance and investment opportunities, as they are

perceived as lower-risk and more attractive investment prospects (Cantele & Zardini, 2020;

Trencansky et al., 2022).

Operational Efficiency: Sustainability reporting can help SMEs identify opportunities for

resource efficiency, waste reduction, and cost savings (Corazza, 2019; Trencansky et al.,

2022). By measuring and reporting on their environmental and social impacts, SMEs can

pinpoint areas for improvement and implement strategies to optimize their operations,

resulting in increased profitability and competitiveness.

Innovation and Competitiveness: Adopting sustainable practices and reporting on their

efforts can foster innovation within SMEs, enabling them to develop new products, services,

or business models that cater to the growing demand for sustainable solutions (Cantele &
Zardini, 2020; Trencansky et al., 2022). This can differentiate SMEs from their competitors

and provide them with a competitive advantage in the marketplace.

Stakeholder Engagement: Sustainability reporting facilitates stakeholder engagement and

transparency, enabling SMEs to build trust and strengthen relationships with customers,

suppliers, employees, local communities, and other stakeholders (Cantele & Zardini, 2020;

Trencansky et al., 2022). Strong stakeholder relationships can lead to increased customer

loyalty, improved supplier collaborations, and access to valuable resources and networks, all

of which can contribute to the growth of SMEs.

Regulatory Compliance and Risk Management: In some industries and jurisdictions,

sustainability reporting may be mandatory or incentivized by regulatory frameworks

(Calabrese et al., 2021; Venturelli et al., 2022). By engaging in sustainability reporting,

SMEs can ensure compliance with relevant regulations and demonstrate their commitment to

responsible business practices, which can mitigate risks and potential legal or reputational

consequences (Cantele & Zardini, 2020; Trencansky et al., 2022).

While the adoption of sustainability reporting practices can contribute to the growth of SMEs,

it is essential to recognize and address the challenges and barriers that SMEs may face in

implementing these practices (Corazza, 2019; Trencansky et al., 2022). These challenges may

include limited resources, lack of expertise, perceived high costs, and the complexity of

sustainability reporting frameworks (Mura et al., 2019; Cantele & Zardini, 2020).

Overcoming these challenges through capacity building, simplifying reporting processes, and

providing support and incentives can encourage more SMEs to embrace sustainability

reporting and unlock its potential benefits for their growth and development.

2.1.4 Benefits of Sustainability Reporting for SMEs in Nigeria

Engaging in sustainability reporting can provide numerous benefits for small and medium-

sized enterprises (SMEs) in Nigeria. One of the primary advantages is the potential to

enhance the reputation and brand image of the SME (Cantele & Zardini, 2020; Trencansky et

al., 2022). By demonstrating their commitment to environmental, social, and governance

(ESG) practices through sustainability reporting, SMEs can position themselves as

responsible and sustainable businesses, which can be appealing to customers, investors, and

other stakeholders (Cantele & Zardini, 2020; Trencansky et al., 2022). Another significant

benefit of sustainability reporting for Nigerian SMEs is the potential for improved access to

finance and investment opportunities (Calabrese et al., 2021; Venturelli et al., 2022). As

investors and financial institutions increasingly consider sustainability factors in their

decision-making processes, SMEs that engage in sustainability reporting may be perceived as

lower-risk and more attractive investment prospects (Cantele & Zardini, 2020; Trencansky et

al., 2022). This can facilitate access to capital, enabling SMEs to fund their growth and

expansion plans.

Sustainability reporting can also contribute to operational efficiency and cost savings for

SMEs in Nigeria (Corazza, 2019; Trencansky et al., 2022). By measuring and reporting on

their environmental and social impacts, SMEs can identify opportunities for resource

optimization, waste reduction, and process improvements. Implementing strategies to address

these areas can lead to increased profitability and competitiveness for the SME (Cantele &

Zardini, 2020; Trencansky et al., 2022). Furthermore, sustainability reporting can foster

innovation and differentiation for Nigerian SMEs (Cantele & Zardini, 2020; Trencansky et

al., 2022). By adopting sustainable practices and communicating their efforts through

reporting, SMEs can develop new products, services, or business models that cater to the

growing demand for sustainable solutions. This can provide a competitive advantage and

enable SMEs to stand out in their respective markets (Cantele & Zardini, 2020; Trencansky et
al., 2022). Engaging in sustainability reporting can also strengthen stakeholder engagement

and transparency for SMEs in Nigeria (Calabrese et al., 2021; Venturelli et al., 2022). By

disclosing their sustainability performance, SMEs can build trust and foster stronger

relationships with customers, suppliers, employees, local communities, and other

stakeholders. This can lead to increased customer loyalty, improved supplier collaborations,

and access to valuable resources and networks, contributing to the overall growth and success

of the SME (Cantele & Zardini, 2020; Trencansky et al., 2022).

2.1.5 Challenges of Sustainability Reporting for SMEs in Nigeria

Despite the potential benefits, SMEs in Nigeria face several challenges in implementing

sustainability reporting practices. One of the primary challenges is the limited availability of

resources, including financial resources, human resources, and expertise (Corazza, 2019;

Trencansky et al., 2022). Many SMEs in Nigeria operate with limited budgets and may lack

the necessary funds to invest in sustainability reporting initiatives or hire dedicated personnel

with the required skills and knowledge (Mura et al., 2019; Cantele & Zardini, 2020).

Another challenge for Nigerian SMEs is the perceived high cost and complexity associated

with sustainability reporting (Corazza, 2019; Trencansky et al., 2022). Developing

comprehensive sustainability reports, collecting and analyzing relevant data, and ensuring

compliance with reporting frameworks can be time-consuming and resource-intensive tasks.

SMEs may view these processes as burdensome and costly, deterring them from engaging in

sustainability reporting (Mura et al., 2019; Cantele & Zardini, 2020). The voluntary nature of

sustainability reporting can also pose a challenge for SMEs in Nigeria (Calabrese et al., 2021;

Venturelli et al., 2022). Without mandatory requirements or regulations, SMEs may lack the

incentive or motivation to prioritize sustainability reporting, especially when faced with

competing business priorities and resource constraints (Corazza, 2019; Trencansky et al.,

2022).

Additionally, SMEs in Nigeria may face challenges related to the lack of awareness and

understanding of sustainability reporting among business owners and managers (Corazza,

2019; Trencansky et al., 2022). Many SME owners and managers may not be familiar with

the concept of sustainability reporting or its potential benefits, leading to a lack of interest or

prioritization of these practices within their organizations (Calabrese et al., 2021; Venturelli

et al., 2022). Furthermore, the absence of standardized frameworks or guidelines specifically

tailored for SMEs can create difficulties in implementing sustainability reporting practices

(Mura et al., 2019; Cantele & Zardini, 2020). Existing frameworks, such as the Global

Reporting Initiative (GRI) Standards, may be perceived as complex and resource-intensive

for SMEs, requiring adaptation or simplification to suit their unique needs and capabilities

(Corazza, 2019; Trencansky et al., 2022).

While these challenges are significant, it is crucial to address them through targeted

initiatives, capacity-building programs, and supportive policies to encourage and facilitate

sustainability reporting among SMEs in Nigeria. By overcoming these obstacles, SMEs can

unlock the potential benefits of sustainability reporting and contribute to the overall

sustainable development of the Nigerian economy.

2.1.6 Key Drivers of Sustainability Reporting among SMEs

Several key drivers have emerged as significant factors influencing the adoption of

sustainability reporting practices among SMEs. These drivers play a crucial role in

motivating SMEs to engage in sustainability reporting despite the challenges they may face.
Understanding these drivers is essential for promoting and facilitating the adoption of

sustainability reporting practices among SMEs.

One of the primary drivers is the increasing stakeholder pressure and expectations for

transparency and accountability in business practices. Recent studies indicate that customers,

investors, employees, and local communities are increasingly demanding information about

companies' environmental and social impacts (Cantele & Zardini, 2020; Trencansky et al.,

2022). This growing stakeholder awareness and concern are pushing SMEs to disclose their

sustainability performance, even if they are not subject to the same regulatory pressures as

larger corporations.

Regulatory requirements and government initiatives also serve as important drivers for

sustainability reporting among SMEs. As governments worldwide introduce policies and

regulations to promote sustainable business practices, SMEs are increasingly motivated to

adopt sustainability reporting to ensure compliance and avoid potential penalties (Calabrese

et al., 2021; Venturelli et al., 2022). In some jurisdictions, sustainability reporting is

becoming mandatory for businesses of all sizes, further driving SMEs to engage in these

practices.

Market opportunities and competitive advantage represent another significant driver for

SMEs to engage in sustainability reporting. By demonstrating their commitment to

sustainable practices, SMEs can differentiate themselves in the market, attract

environmentally and socially conscious customers, and gain access to new business

opportunities (Corazza, 2019; Mura et al., 2020). Sustainability reporting can help SMEs

position themselves as responsible businesses, potentially leading to increased market share

and improved competitiveness.

Access to finance and investment has emerged as a crucial driver for sustainability reporting

among SMEs. Recent research suggests that financial institutions and investors are

increasingly considering environmental, social, and governance (ESG) factors in their

decision-making processes (Calabrese et al., 2021; Venturelli et al., 2022). SMEs that engage

in sustainability reporting and demonstrate responsible business practices may have better

access to funding and investment opportunities, as they are perceived as lower-risk and more

attractive investment prospects.

Internal motivations, such as cost savings and operational efficiency, also drive SMEs to

adopt sustainability reporting practices (Cantele & Zardini, 2020; Trencansky et al., 2022).

By measuring and reporting on their sustainability performance, SMEs can identify areas for

improvement, implement resource-efficient practices, and ultimately reduce costs and

enhance their overall operational efficiency. This internal focus on sustainability can lead to

tangible benefits for the business, further motivating SMEs to engage in reporting practices.

Supply chain pressures and requirements from larger companies are increasingly driving

SMEs to adopt sustainability reporting practices (Touboulic & Walker, 2021; Mura et al.,

2020). As larger corporations focus on improving the sustainability of their supply chains,

they often require their suppliers, many of which are SMEs, to report on their sustainability

performance. This pressure from business partners and customers can be a significant

motivator for SMEs to engage in sustainability reporting.

Lastly, the growing awareness of global sustainability challenges, such as climate change and

social inequality, is driving many SME owners and managers to take action (Johnson &

Schaltegger, 2020; Mura et al., 2020). This increased consciousness of sustainability issues is

leading to a sense of responsibility and a desire to contribute positively to society and the
environment, motivating SMEs to adopt sustainability reporting as a means of tracking and

communicating their efforts.

2.2 Theoretical Review

2.2.1 Stakeholder Theory

Proposed by R. Edward Freeman in 1984, the stakeholder theory suggests that organizations

should consider the interests of various stakeholders, such as shareholders, employees,

customers, suppliers, local communities, and the environment, in their decision-making

processes (Freeman, 1984). This theory recognizes that organizations do not operate in

isolation but are part of a complex network of stakeholders who can influence and be

influenced by the organization's actions (Donaldson & Preston, 1995; Freeman et al., 2010).

The Stakeholder Theory emphasizes the importance of maintaining strong relationships with

stakeholders and balancing their interests to create value for all parties involved (Donaldson

& Preston, 1995; Freeman et al., 2010). By engaging in sustainability reporting, organizations

can demonstrate their commitment to accountability, transparency, and responsible business

practices, thereby meeting the expectations and demands of various stakeholders (Hörisch et

al., 2015; Perrini & Tencati, 2006).

In the context of SMEs and sustainability reporting, the stakeholder theory suggests that

engaging in these practices can help SMEs build and maintain strong relationships with their

stakeholders, including customers, employees, suppliers, local communities, and regulatory

bodies (Hörisch et al., 2020; Stubbs & Higgins, 2018). By communicating their sustainability

performance and demonstrating their commitment to responsible business practices, SMEs

can enhance their reputation, build trust, and create value for their stakeholders (Ayuso et al.,

2020; Torugsa et al., 2020). Furthermore, the stakeholder theory posits that meeting the
expectations of stakeholders can contribute to the long-term success and growth of an

organization (Freeman et al., 2010; Perrini & Tencati, 2006). For SMEs, engaging in

sustainability reporting can help them attract and retain customers, employees, and investors

who value sustainability and responsible business practices (Hörisch et al., 2020; Stubbs &

Higgins, 2018), ultimately fostering their growth and profitability.

However, the stakeholder theory has been criticized for its broad definition of stakeholders

and the potential conflicts that may arise when trying to balance the diverse interests of

multiple stakeholder groups (Alam, 2006; Key, 1999). Additionally, the theory has been

challenged for its normative approach, which may not align with the profit-maximizing

objectives of some organizations (Jensen, 2002; Sundaram & Inkpen, 2004).

2.2.2 Legitimacy Theory

The legitimacy theory, developed in the 1970s and 1980s, is based on the notion that

organizations must operate within the bounds and norms of their respective societies to be

perceived as legitimate and socially acceptable (Deegan, 2002; Suchman, 1995). This theory

suggests that organizations strive to ensure that their activities are congruent with the values

and expectations of the society in which they operate, in order to gain legitimacy and secure

access to resources and support (Deegan, 2002). According to the legitimacy theory,

organizations engage in sustainability reporting to demonstrate their commitment to social

and environmental responsibility, thereby gaining legitimacy and maintaining their "license

to operate" within society (Deegan, 2002). By disclosing information about their

sustainability performance, organizations can signal their alignment with societal values and

expectations, potentially reducing the risk of social sanctions or regulatory interventions

(Hahn & Lülfs, 2014; Higgins et al., 2014).

In the context of SMEs and sustainability reporting, the legitimacy theory suggests that

engaging in these practices can help SMEs gain legitimacy and social acceptance within their

local communities and broader stakeholder groups (Hörisch et al., 2020; Stubbs & Higgins,

2018). As SMEs often have close ties to their local communities and rely on local resources

and support, maintaining legitimacy is crucial for their long-term growth and survival (Ayuso

et al., 2020; Torugsa et al., 2020). Furthermore, the Legitimacy Theory proposes that

sustainability reporting can help SMEs mitigate potential risks and negative consequences

associated with perceived irresponsible or unsustainable practices (Deegan, 2002). By being

transparent about their sustainability efforts, SMEs can proactively address stakeholder

concerns and maintain their social license to operate, reducing the likelihood of regulatory

interventions, boycotts, or other negative consequences that could impede their growth and

success.

The legitimacy theory has faced criticism for not adequately considering the power dynamics

and conflicts that can occur between organizations and their stakeholders (Archel et al.,

2019). Moreover, it has been challenged for assuming that organizations pursue sustainability

reporting solely to gain legitimacy, thereby overlooking other possible motivations such as

achieving competitive advantage or adhering to ethical standards (Gray et al., 1995; Parker,

2005).

2.2.3 Resource-Based View (RBV) Theory

The resource-based view (RBV) theory, proposed by Birger Wernerfelt in 1984 and further

developed by Jay Barney in 1991, is a strategic management theory that focuses on the role

of internal resources and capabilities in achieving competitive advantage and superior

performance (Barney, 1991; Wernerfelt, 1984). According to this theory, organizations

possess a unique bundle of resources, both tangible and intangible, that can be leveraged to
create value and achieve sustainable competitive advantage (Barney, 1991; Peteraf, 1993). In

the context of sustainability reporting, the RBV Theory suggests that engaging in these

practices can be viewed as a valuable resource or capability that can contribute to an

organization's competitive advantage and growth (Hörisch et al., 2020; Villiers & Sharma,

2017). By reporting on their sustainability performance, organizations can develop and

demonstrate their expertise in responsible business practices, environmental stewardship, and

social responsibility (Hörisch et al., 2020; Villiers & Sharma, 2017).

For SMEs, the RBV Theory implies that sustainability reporting can serve as a valuable

intangible resource that differentiates them from their competitors and contributes to their

long-term success (Hörisch et al., 2020; Stubbs & Higgins, 2018). In today's increasingly

conscious and environmentally aware market, customers and stakeholders are placing greater

emphasis on sustainability and responsible business practices (Hörisch et al., 2020; Villiers &

Sharma, 2017). By engaging in sustainability reporting, SMEs can demonstrate their

commitment to these values and position themselves as responsible and sustainable

enterprises, potentially attracting and retaining customers, investors, and other stakeholders

who value these principles (Hörisch et al., 2020; Stubbs & Higgins, 2018). Furthermore, the

RBV Theory suggests that sustainability reporting can contribute to the development of

organizational capabilities that are difficult for competitors to imitate (Barney, 1991; Peteraf,

1993). For instance, by implementing sustainability reporting practices, SMEs can develop

expertise in measuring, monitoring, and managing their environmental and social impacts

(Hörisch et al., 2020; Villiers & Sharma, 2017). These capabilities can lead to increased

operational efficiency, cost savings, and the development of innovative products or services

that cater to the growing demand for sustainable solutions (Hörisch et al., 2020; Massaro et

al., 2016).
The RBV Theory has faced criticism for being static and not accommodating the dynamic

and evolving nature of the business environment (Kraaijenbrink et al., 2010; Priem & Butler,

2001). Furthermore, it has been challenged due to the difficulty in identifying and measuring

intangible resources, which can introduce ambiguity and subjectivity when evaluating an

organization's competitive advantage (Lockett et al., 2019; Wiklund & Shepherd, 2003).

2.3 Empirical Review

2.3.1 Studies from Developed Countries

Bergmann & Posch, (2018) studies how German firms evaluate a recent national corporate

social responsibility (CSR) law based on a European Union directive and the burden they

expect regarding their organizational responsibilities due to mandatory sustainability

reporting. One hundred and fifty-one firms of different sizes directly or indirectly affected by

the law are included in the survey and their responses empirically analyzed using two-tailed t-

tests and simple linear regression. Anchoring the discussion in stakeholder theory and the

small and medium-sized enterprise (SME) literature while considering large-firm

idiosyncrasies, the results show differing effects on SMEs and large firms as well as firms

which are directly and indirectly affected. Findings show that firm size only matters for the

evaluation of the law by directly affected firms, while size does not matter in the case of

indirectly affected firms. Possible moderators of this evaluation are grounded in the resource-

based theory and formalization of CSR.

Socoliuc et al., (2020) aimed to develop an econometric model for assessing the sustainability

of non-financial performance in forestry companies. The research methodology involved

analyzing a sample of 248 active Romanian forestry companies across four distinct sectors.

Specific indicators were calculated to identify risks, vulnerabilities, and sector-specific

trends. Data analysis focused on evaluating companies' performance relative to sustainability

metrics and sector averages. Key findings revealed significant variations in sustainability

performance across different forestry subsectors. Companies operating in NACE codes 240

and 210 demonstrated above-average results in terms of sector vulnerability, indicating

stronger sustainability practices. In contrast, entities in NACE codes 220 and 230 showed

greater vulnerability and higher risk profiles in their sustainable development efforts. The

study concludes that sustainability performance in the Romanian forestry sector is closely

linked to specific NACE code classifications, with some subsectors demonstrating more

robust sustainable practices than others.

Al-Ali Mubarak et al., (2020) aims to identify the factors affecting perceived corporate

sustainability practices (PCSP) and investigate the relationship between PCSP and

organizational performance. A quantitative approach was deployed using Structural Equation

Modelling (SEM) to analyse the responses from 203 managers for SMEs in Qatar. The study

revealed that CSR practices, green practices, and corporate environmental strategy were

found to significantly affect PCSP while top management support does not play an important

role in it. Moreover, the study showed that PCSP significantly affects financial performance

while the relationship between PCSP and none financial performance was not supported by

the results. Furthermore, this research is expected to provide SMEs and sustainability

literature with valuable suggestions for management practices.

Saygili et al., (2023) identify sustainability indicators for small- and medium-sized industrial

firms. The sustainability indicators are generated from the G4-specific standard disclosures of

the Global Reporting Initiative, which provide a triple-bottom-line approach. A total of 142

senior and middle sustainability-focused managers and partners participated in the survey. An

exploratory factor analysis was performed in the first step, and 12 key factors were found.
The Best–Worst Method (BWM) was employed in the second step to rank the criteria in

order of priority. As a theoretical contribution, this study introduces human rights and

economic impact on society as two additional sustainability indicators for small- and

medium-sized enterprises. The two most significant aspects of sustainability for Turkish

small- and medium-sized businesses are labor rights and energy saving. This study provides

empirical evidence from a broad range of stakeholders for the conceptually addressed

challenges of sustainability in prior studies. The results demonstrate empirically that the

sustainability-based value creation for stakeholder interests, such as employees at the core of

business activities, is greater in small and medium enterprises than for other stakeholders.

2.3.2 Studies from Developing Countries

Sarango-Lalangui et al., (2018) aims to find out if small and medium-sized enterprises in this

country are involved in the adoption of sustainable practices as well as see if there are

significant differences in adoption based on size, sector, and age. The methodology used is

the performance of a descriptive analysis and regression of the data obtained through a

structured questionnaire (indicators of the Ethos Institute of Brazil). Previously, the reliability

of the questionnaire was validated through an exploratory factor analysis. The target

population consists of 9843 enterprises, obtaining a sample size of 188 valid surveys, which

implies a response rate of 2%, representing a sampling error of ±7.08%. The results obtained

enabled us to perform a sustainability diagnosis of SMEs in Ecuador, identifying the

strengths and weaknesses. The managers have a positive and favourable attitude towards

sustainability. The practices considered show a medium-high implementation level of 79.71%

in economic sustainability, 82.28% in social sustainability, and 78.14% in environmental

sustainability in the enterprises considered in the sample. Although these percentages are

significant, there is plenty of scope for improvement.

Mondal, (2021) examine to what extent sustainability guidelines, national and international,

are followed by the Indian SMEs. The main objective of this study is to examine the

sustainability disclosure practices of Indian SMEs. For this purpose, 25 SMEs are considered

which are listed in BSE SME and their annual reports for the year 2018-19 are examined. The

present study indicates that sustainability issues are of the highest priority but still in their

nascent stage particularly among the Indian SMEs. Based on content analysis, the study result

shows that the overall disclosure level of sustainability issues is moderate. This pilot study

provides an idea about the sustainability reporting practices of Indian Small and Medium-

sized Enterprises. Despite some limitations, this is the first study that examines the extent of

sustainability reporting practices voluntarily following national and international guidelines.

Adda et al., (2021) examines the influence of management commitment as an organisational

factor on corporate sustainability integration in Ghana using corporate strategic decision-

making as a mediating variable. Primary data was collected from SME owners and managers

in Ghana; and the Warp partial least squares (PLS) estimation technique of the Structural

Equation Model (SEM) was adopted for the analysis. The study makes a significant

contribution to theory and knowledge in the context of SMEs within the corporate

sustainability discourse. The study is situated on the empirical literature on the relevant

concepts. This is followed by the methodology, analysis, discussions, findings, conclusions,

contribution to knowledge, managerial implications, recommendations and limitations,

followed by direction for future studies.

Almashhadani & Almashhadani, (2023) determine the relationship between sustainability

reporting and firm performance in the financial sector of Bahrain. The study employed a

quantitative cross-sectional approach, with data collected from secondary sources. The

population consisted of firms from the financial sector listed on the Bahrain Stock Exchange
for the year 2021, and the sample size was 20 companies. The study utilized the Partial Least

Squares (PLS) software for data analysis. The findings revealed a significant positive

relationship between sustainability reporting and firm performance, as measured by return on

assets (ROA) and return on equity (ROE). Specifically, sustainability reporting had a

substantial impact on both ROA and ROE, indicating that firms with better sustainability

reporting practices tend to exhibit higher profitability. The study concluded that sustainability

reporting plays a crucial role in enhancing firm performance in the Bahraini financial sector.

2.3.3 Studies from Nigeria

Onoja et al., (2021) identified the factors that could determine Global Reporting Initiative-

Based Sustainability Reporting of listed Oil and Gas Firms in Nigeria and South Africa. The

determinant factors which include Ownership Structure and Profitability served as proxies to

the independent variable (Determinant) while Social Sustainability Reporting was used to

measure Sustainability Reporting (the dependent variable). Ex-Post facto research design and

content analysis method were adopted. Fourteen (14) listed Oil and Gas firms: seven (7)

listed Oil and Gas firms in Nigeria and seven (7) listed Oil and Gas firms in South Africa

constituted the sample size of this study for the years 2010 and 2020. Secondary data were

extracted from the annual reports and accounts of the sampled firms and extracts from the

annual reports were analyzed using Pearson Correlation, Panel Least Square (PLS) regression

analysis through E-Views 10.0 statistical software. Findings from the empirical analysis

showed that Ownership Structure, and Profitability, had significant effect on Social

Sustainability Reporting, though Ownership Structure, (for Nigeria) maintained negative

attitude to Social Sustainability Reporting at 5% level of significance.

Awa, (2021) examined the effect of sustainability reporting on the financial performance of

manufacturing firms in Nigeria from 20115-2020. This was to ascertain the effect of
community relations disclosure, employee relations disclosure, board composition disclosure,

and environmental disclosure on the return of Assets of these firms. Data used were sourced

from annual reports of the selected manufacturing firms and were analyzed using panel least

square regression technique based on the fixed effect of the regression model. The findings

showed that community relation disclosures and employee relation s disclosures have

negative and significant effect on the return on assets, while board composition and

environmental disclosures have positive and significant effect on return on assets of selected

manufacturing firms in Nigeria. It was concluded that sustainable reporting components of

community relation, environmental reporting, and employee relation as well as board

composition had mix effects on the performance of manufacturing firms.

Chondough, (2023) seeks to add to the limited literature by investigating the implication of

socially responsible behavior on the performance of SMEs in Nigeria. Corporate reputation,

profit maximization and management efficiency are dependent variables used as proxies for

performance measurement. A well-structured questionnaire was administered to 63 Nigerian

SMEs. The study adopted a structural equation model using SmartPLS for the data analysis.

Findings show a significant relationship between corporate social responsibility and the three

determinants of firm performance (management efficiency, profit maximization and

corporate reputation).

Mustapha, (2023) examined the factors that determine the level of sustainability reporting

practices among listed industrial and domestic goods firms in Nigeria. It employed a cross-

sectional research design to obtain data from randomly selected one hundred and ninety-two

(192) senior managers of the target listed firms. The hypotheses of the study were tested

using partial least square structural equation modeling (PLS-SEM). The result of the PLS-

SEM revealed that corporate strategic posture and organizational culture have positive and
significant effect on the level of sustainability reporting practice among listed industrial and

domestic goods sector in Nigeria. However, the study found that institutional pressure has an

insignificant negative effect on sustainability reporting.

Abdullahi & Abubakar, (2023) examines the challenges and barriers of sustainability

reporting faced by reporting entities in the Nigerian context. To conduct the literature review

more systematically, the systematic review method was employed. Therefore, this study

reveals that firms are still facing significant barriers and challenges in reporting sustainability

such as lack of knowledge and understanding of sustainability reporting; lack of integration

of sustainability performance with incentives; lack of sustainability communication with

various stakeholder groups, lack of standardization in reporting sustainability; lack of

collective efforts for sustainability. The study further, suggested that firms’ sustainability

initiatives are being delayed due to lack of government policies regarding the determination

of social and environmental programs which was also part of the hurdles to effective

sustainability reporting.

Abdulwahab et al., (2023) examined the effect of corporate governance mechanisms on

sustainability reporting of listed non- financial firms in Nigeria. The study measured

corporate governance attributes with board size, board independence, board gender diversity,

board financial expertise and sustainability reporting was measured by sustainability

disclosures metrics in line with Global Reporting Initiative (GRI) standards. The study

adopted correlation research design relying on secondary data obtained from annual reports

of the population, which comprised of 116 non-financial firms listed on Nigeria Exchange

Group (NGX) as at 31st December 2020 with a sample size of 51 firms, covering the period

of 2011 – 2020. The study employed multiple regression panel model to analyze the data with

the aid of E-view 10 statistical tool. According to the results of random effect regression,
board size and board members’ financial expertise have positive and significant effect on

sustainability reporting. Based on the findings, the study concluded that corporate governance

attributes have the capacity to effectively enhance the sustainability reporting of firms.

Akinleye & Owoniya, (2024) conducted a comprehensive analysis of the link between

sustainability reporting and the financial performance of quoted firms in Nigeria. This

research employed an ex-post facto research approach, utilizing data from annual reports,

financial statements, and sustainability reports of 153 publicly listed companies on the

Nigerian Exchange Group (NGX). Through quantitative methods, the study assessed the

extent and quality of sustainability reporting among Nigerian companies and its relationship

with financial performance indicators. A purposive sampling method was used to select a

sample of 10 firms known for their voluntary disclosure of information in financial reports.

The study spanned from 2012 to 2021, totalling 10 years, and involved both descriptive and

inferential statistical analyses of the collected data. Using regression analysis, the study found

a statistically significant positive impact of sustainability reporting metrics - including

governance information disclosure, credibility information disclosure, and environmental

profile disclosure on firm performance.

Adejola et al., (2024) examines how sustainability reporting affects the financial performance

of Nigerian- listed agriculture and natural resource companies. Using return on assets (ROA)

as a proxy for corporate financial performance, the study's particular goals were to ascertain

if reporting on economic and social sustainability had an effect on the financial performance

of the sampled industries. The annual reports of nine (9) chosen firms were the source of the

data from 2014 to 2023. Using the E-Views statistical program, the panel least squares

regression approach was used to assess the data. The study found that the financial

performance of the examined firms is negatively and insignificantly impacted by reporting on

economic and social sustainability. The study concluded that sustainability reporting had no

significant effect on the performance of Nigerian listed agriculture and natural resources

firms.

2.4 Research Gaps

While the existing literature has provided valuable insights into sustainability reporting and

its impact on various aspects of firm performance, there are several gaps that warrant further

investigation, particularly in the context of small and medium-sized enterprises (SMEs) in

Nigeria.

Firstly, most of the reviewed studies focused on large corporations or publicly listed

companies, with limited attention given to SMEs (Akinleye & Owoniya, 2024; Abdullahi &

Abubakar, 2023; Adejola et al., 2024; Awa, 2021; Almashhadani & Almashhadani, 2023).

The unique challenges, resources, and capabilities of SMEs in implementing sustainability

reporting practices have not been extensively explored. This study bridges this gap by

specifically examining the impact of sustainability reporting on the growth of SMEs in

Nigeria, thereby contributing to a better understanding of the opportunities and challenges

faced by these enterprises.

Secondly, the majority of the reviewed studies have focused on the relationship between

sustainability reporting and financial performance metrics, such as return on assets (ROA),

return on equity (ROE), and profitability (Akinleye & Owoniya, 2024; Adejola et al., 2024;

Awa, 2021; Almashhadani & Almashhadani, 2023). However, the impact of sustainability

reporting on the broader growth strategies and non-financial aspects of SMEs has not been

extensively investigated. This study fills this gap by exploring the influence of sustainability
reporting on various growth strategies employed by SMEs, such as market expansion,

product innovation, and operational efficiency.

Lastly, while some studies have examined the challenges faced by firms in implementing

sustainability reporting (Abdullahi & Abubakar, 2023; Mura et al., 2019), few have

specifically focused on the challenges encountered by SMEs in the Nigerian context (Alipour

& Rahimpour, 2020; Belal & Cooper, 2011). This study contributes to the existing literature

by identifying and analyzing the unique challenges faced by Nigerian SMEs in adopting

sustainability reporting practices, thereby informing potential solutions and support

mechanisms.

By addressing these gaps, this study aims to provide a comprehensive and nuanced

understanding of the impact of sustainability reporting on the growth of SMEs in Nigeria, as

well as the challenges, opportunities, and stakeholder perceptions surrounding this practice.

The findings of this research will contribute to the existing body of knowledge and provide

valuable insights for SMEs, policymakers, and stakeholders in promoting sustainable

business practices and fostering the growth of the SME sector in Nigeria.
 CHAPTER THREE
METHODOLOGY
3.1 Research Design

The design for this study was survey. The key benefit of this type of design was that it gave

the researcher the ability to assess the impact of sustainability reporting on the growth of

Small and Medium Enterprises (SMEs) in selected states across the six geopolitical zones of

Nigeria at the time of the investigation. Thus, the researcher employed the design to evaluate

the relationships between sustainability reporting practices and the growth strategies,

challenges faced, stakeholder perceptions, and perceived benefits of sustainability reporting

for SMEs in the selected states. By surveying SME owners, managers, and stakeholders

across these states, the researcher was able to gather empirical data to examine the impact of

sustainability reporting on SME growth.

3.2 Population of Study

The study's target population consisted of registered SMEs operating in the following

selected states across the six geopolitical zones of Nigeria:

Table 3.1 Population Distribution

State Geopolitical Zone Number of SMEs

Kwara North-Central 2,875

Kano North-West 7,125

Bauchi North-East 3,500

Lagos South-West 11,663

Anambra South-East 5,240

Rivers South-South 4,875

 Total 35,278

Source: Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), 2023.

3.3 Sample Size and Sampling Techniques

The sample size for the study was determined using the Taro Yamane formula for calculating

sample size, which takes into consideration the population size, the desired level of precision,

and the confidence level:

n = N / (1 + N(e)^2)

Where n = sample size, e = error term (valued at 0.05), N = population size.

n = 35,278 / (1 + 35,278(0.05)^2)

n = 35,278 / (1 + 35,278(0.0025))

n = 35,278 / (1 + 88.195)

n = 35,278 / 89.195

n = 395

Therefore, the sample size for this study was 395 SMEs from the selected states across the six

geopolitical zones of Nigeria, selected using a proportionate stratified random sampling

technique. The proportionate stratified random sampling technique was used to ensure that

SMEs from each state were adequately represented in the sample based on their population

size. The sample size for each state was calculated as follows:
Table 3.1 Population Distribution

State Geopolitical Zone Calculation Sample Size

Kwara North-Central (2,875/35,278) x 395 32

Kano North-West (7,125/35,278) x 395 80

Bauchi North-East (3,500/35,278) x 395 39

Lagos South-West (11,663/35,278) x 395 131

Anambra South-East (5,240/35,278) x 395 59

Rivers South-South (4,875/35,278) x 395 54

Total 395

Source: Authors’ Computations

3.4 Source of Data

Primary data for this study was obtained through the administration of self-structured

questionnaires to the selected SME across the six selected states.

3.5 Research Instrument

A self-structured questionnaire was utilized as the study's tool for gathering primary data.

The questionnaire was designed to record the respondents' demographic information and their

perspectives on sustainability reporting practices, growth strategies, challenges faced,

stakeholder perceptions, and perceived benefits of sustainability reporting for SMEs.

The questionnaire comprised four sections: Section A solicited respondents' demographic

information, including age, gender, educational background, position within the organization,

and years of experience in the SME sector.

Section B focused on sustainability reporting practices among SMEs. This section included

questions related to the awareness and understanding of sustainability reporting, the extent of

implementation, the reporting frameworks or guidelines utilized, and the perceived benefits

of sustainability reporting for SMEs.

Section C addressed the growth strategies of SMEs and the influence of sustainability

reporting on these strategies. Questions in this section covered topics such as market

expansion, product innovation, operational efficiency, access to finance, and stakeholder

engagement.

Section D explored the challenges faced by SMEs in implementing sustainability reporting

practices. Respondents were asked about resource constraints, lack of expertise, perceived

costs, and other barriers they encountered in adopting sustainability reporting.

The questionnaire employed a multiple-choice question and closed ended Likert scales

closed-ended questions to gather comprehensive and nuanced responses from the

participants. The multiple-choice questions were used for the demographic questions while

Likert scales were used to measure the extent of agreement or disagreement with various

statements related to sustainability reporting practices, growth strategies, challenges, and

stakeholder perceptions.

3.7 Reliability and Validity of Research Instrument

3.7.1 Reliability of Research Instrument

Ensuring the reliability of the research instrument was crucial to obtain consistent and

dependable results. To achieve this, multiple measures were implemented. First, the internal

consistency of the questionnaire items was assessed using Cronbach's alpha coefficient. This

widely accepted measure evaluates the extent to which the items in a scale or instrument
measure the same underlying construct. A generally accepted threshold of 0.7 or higher for

Cronbach's alpha was considered acceptable for establishing the instrument's reliability.

Additionally, a test-retest reliability method was employed. In this approach, the

questionnaire was administered to a small sample of SME owners, managers, and

stakeholders not included in the main study. After a specified interval, typically ranging from

two to four weeks, the same participants were asked to complete the questionnaire again. The

responses from the two administrations were then compared to assess the stability and

consistency of the instrument over time. A high correlation between the two sets of responses

would indicate strong test-retest reliability, suggesting that the instrument produces consistent

results when measured under similar conditions.

3.7.2 Validity of Research Instrument

Ensuring the validity of the research instrument was equally crucial to ensure that it

accurately measured what it was intended to measure. Several measures were implemented to

establish the validity of the instrument. First, content validity was assessed by consulting

subject matter experts, including academic researchers and industry professionals. These

experts reviewed the questionnaire items to evaluate their relevance, clarity, and

comprehensiveness in measuring the intended constructs. Their feedback was carefully

considered, and necessary modifications were made to enhance the content validity of the

instrument.

Next, face validity was established by our supervisor. The supervisor evaluated the

appearance, clarity of instructions, and overall structure of the questionnaire. Their inputs

were used to improve the face validity of the instrument, ensuring that it accurately measured

the intended constructs from the perspective of the target population. Additionally, construct

validity was assessed through exploratory factor analysis (EFA). This statistical technique
helped identify the underlying factors or dimensions that the questionnaire items were

measuring. EFA ensured that these factors aligned with the theoretical constructs of the

study, providing evidence of the instrument's construct validity. By implementing these

measures, the researchers aimed to ensure that the research instrument accurately and reliably

measured the impact of sustainability reporting on the growth of SMEs in Nigeria.

3.8 Method of Data Analysis

The data for this study was derived from responses obtained from SME owners, managers,

and stakeholders. Descriptive statistics, including frequencies, percentages, means, and

standard deviations, were employed to analyze the research questions. To test the research

hypotheses, multiple regression analysis was utilized to examine the relationships between

sustainability reporting and the growth strategies, challenges faced, stakeholder perceptions,

and perceived benefits for SMEs.

3.9 Model Specifications

The multiple regression model for this study can be expressed as:

SR = β0 + β1ENGAGE + β2DRIVERS + β3IMPACT + β4ATTITUDE + ε

Where:

SR = Sustainability Reporting

ENGAGE = Level of engagement in sustainability reporting practices

DRIVERS = Key drivers influencing sustainability reporting adoption

IMPACT = Impact on financial performance and growth

ATTITUDE = Sustainability attitudes and practices of SME managers

β0 = Y-intercept (constant term)

β1 to β4 = Regression coefficients for each independent variable

ε = Error term

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