THE 2028 AGENDA
THE ROAD TO 2028 | SUSTAINABILITY REPORTING, RISK AND VALUE
BY ELIJAH OLADUNMOYE
For private equity firms and asset managers, sustainability information matters only when it changes cash-flow forecasts, required investment, risk assessment, portfolio oversight, and exit assumptions.
An investment committee can complete a detailed ESG review and still make the wrong investment decision. The weakness is usually not the absence of information. It is the failure to connect sustainability-related risks and opportunities to the assumptions that determine value.
Nigeria’s adoption of IFRS S1 and IFRS S2 provides a useful discipline. IFRS S1 focuses on material sustainability-related risks and opportunities that could reasonably affect an entity’s prospects, while IFRS S2 applies that investor-focused lens specifically to climate. Private equity firms and asset managers are not unfamiliar with this. It is the language of cash flows, access to finance, cost of capital and enterprise value.
The Financial Reporting Council of Nigeria has made adoption mandatory for Public Interest Entities for accounting periods beginning on or after 1 January 2028. Investments made today may still be held when buyers, lenders and capital providers expect stronger sustainability information. The due diligence standards of the next exit are therefore beginning to shape today’s investment decisions.
Sustainability enters value through identifiable channels
The strongest investment analysis avoids arbitrary ESG premiums or discounts. It identifies how a specific risk or opportunity reaches revenue, operating costs, capital expenditure, working capital, financing, asset life or exit value. IFRS S1 also requires connected information, so assumptions used in sustainability analysis must align with budgets, forecasts, and related financial statements.
A manufacturer may need to invest in resilience or energy efficiency. An infrastructure asset may face higher maintenance, insurance or adaptation costs. A consumer business may experience changes in demand, packaging obligations or supply-chain pressure. A telecom business may face rising power costs and physical risks to network infrastructure. These effects should be connected to model assumptions rather than described only in a due diligence appendix.
WHERE SUSTAINABILITY MAY ENTER THE INVESTMENT MODEL
| Investment question | Sustainability consideration | Possible model location |
| Can revenue growth be sustained? | Customer demand, market access and product transition | Revenue forecasts |
| Are margins resilient? | Energy, water, carbon, labour and compliance costs | Operating expenditure |
| Is additional investment required? | Transition and adaptation projects | Capex and free cash flow |
| Has risk changed? | Policy, technology, litigation and physical exposure | Scenario weights and required returns |
| Is the exit thesis credible? | Buyer expectations, data quality and transition readiness | Terminal value and exit multiple |
Cash flow comes before the discount rate
Sustainability risks should first be mapped to their most direct financial channel. If higher energy costs are already reflected in operating expenses, adding another broad climate premium to the discount rate may double count the same risk. If a transition project is incorporated into capex and improves future margins, both the cost and benefit should be modelled consistently.
The discount rate remains relevant when uncertainty, financing conditions or systematic risk genuinely change. But the adjustment should be evidence-based. Investment committees should be able to explain whether a risk has been reflected in forecasts, scenario probabilities, required returns or an explicit valuation adjustment, and why that treatment is appropriate.
GHG information is an input, not the investment conclusion
The KPMG GHG Emissions Reporting Handbook explains that IFRS S1 and IFRS S2 must be applied together and that IFRS S2 requires disclosure of absolute gross Scope 1, Scope 2 and Scope 3 emissions, subject to materiality and specified reliefs. It also emphasises that value-chain information may combine primary and secondary data, and that the quality, geography, technology and verification status of inputs matter.
For investment teams, the implication is important. A portfolio company’s emissions number should not be accepted without understanding its boundary, methodology, data quality and estimation uncertainty. Equally, a high-emitting business should not be rejected mechanically. The more relevant question is whether the emissions reveal transition exposure, operating inefficiency, future capex, market-access risk or an opportunity for value creation.
IFRS S2 requires entities to consider their entire value chain when identifying material Scope 3 information. For asset managers, relevant investment emissions may include assets under management as well as investments held on the manager’s own balance sheet. This increases the importance of reliable portfolio-company data, but it does not replace fundamental analysis.
Scenario analysis should challenge the investment thesis
A credible investment paper should test whether the value case survives alternative combinations of policy, technology, energy costs and physical hazards. IFRS S2 requires climate-related scenario analysis to assess resilience, using an approach commensurate with an entity’s circumstances.
Global scenarios are useful starting points, but Nigerian investors should calibrate them to power reliability, self-generation, foreign exchange, inflation, financing costs, infrastructure, insurance and the pace of regulation. The purpose is not to produce one precise climate-adjusted value. It is to identify which assumptions are vulnerable, how large the downside or upside could be, and what management actions protect value.
The investment committee paper must change
If sustainability remains in a separate appendix, it has not yet become decision-useful. The core paper should identify material sustainability drivers, their financial transmission channels, the data supporting the assessment, key uncertainties, scenario outcomes and proposed mitigants. This does not require every deal to become a climate study.
The analysis should be proportionate to materiality, holding period, sector and asset characteristics.
Ownership plans should prepare for exit scrutiny
For private equity, the opportunity extends beyond downside protection. Better energy management, more resilient operations, improved supply-chain information and credible sustainability governance may support margins, financing and buyer confidence. These initiatives should appear in the value-creation plan, with costs, milestones and accountabilities.
Portfolio companies should also become capable of producing reliable information. The KPMG handbook notes that IFRS sustainability reporting requires attention to reporting boundaries, materiality, estimates, consistency with financial-statement assumptions and transparent disclosure of methodologies. Even where a portfolio company is not directly within the first mandatory group, buyers, lenders or a future listing process may demand comparable information.
Portfolio metrics need interpretation
Asset managers and private equity firms may use financed emissions, carbon intensity, alignment metrics or engagement indicators. No single metric captures the complete investment picture. Portfolio emissions may change because of asset sales, market values, increased data coverage or methodology changes rather than operational decarbonisation. The Board and investment committee should receive metrics with explanations of coverage, quality, movement and limitations. Transparency is more useful than false precision.
WHAT NIGERIAN INVESTORS SHOULD DO NOW
1. Revise due diligence and IC templates to identify sector-specific sustainability drivers.
2. Map material risks and opportunities to cash flow, capex, financing, risk and exit assumptions.
3. Introduce proportionate, Nigeria-calibrated scenario analysis for material exposures.
4. Build transition and resilience actions into ownership plans, budgets and management KPIs.
5. Establish reliable portfolio-data processes that can support investor scrutiny and future assurance.
Sustainability becomes investment discipline when the investment committee can point to the revenue, cost, capex, financing or exit assumption that changed. That is the point at which an ESG review stops being a side exercise and starts protecting and creating value.
•About the author: Elijah Oladunmoye is an Audit Partner and finance and sustainability thought leader with extensive experience in financial services, corporate reporting, assurance, valuation and climate-related financial risk.