Climate Finance, Environmental Risk Accounting and Firm Value: A Comparative Study of Nigeria and South Africa

The study examined the relationship among climate finance (CF), Environmental Risk Accounting (ERA), and firm value for publicly listed non-financial firms in Nigeria and South Africa between 2010 and 2022. Using a carefully balanced panel sample consisting of 520 observations, we construct our independent variables as follows: Climate Finance (CF); Climate Financial Exposure (CFEI), using an AI-powered textual analysis approach; and Greenwashing Gap (GWG). Through fixed-effects panel regression, our results indicate that while climate finance does not directly influence firm value, CF and the quality of ERA practices interact positively, showing that CF only creates value conditional on high-quality ERA. Greenwashing risk is negatively associated with firm value, while environmental-risk-accounting quality is separately associated with higher firm value. Institutional differences across countries have consequences for the role of ERA. These results are examined using a double-theoretic approach that integrates institutional theory to justify how the regulation pressure leads to differences in accounting disclosures in different countries, and the resource-based theory, to justify how these differences influence firm value. The application of difference-in-difference analysis through the adoption of the King IV code by South African firms provides evidence consistent with an appreciable valuation premium by firms in South Africa after the intervention. The findings are broadly consistent across methods such as IV-2SLS, System GMM, Propensity Score Matching, and the Heckman Selection Model. There are important ramifications of the findings for accounting practice and environmental policy within sub-Saharan Africa.