When the staff at the International Sustainability Standards Board (ISSB) went looking for an alternative to the term “environmental assets”, they came up with “natural resources and ecosystems” – only to concede in a footnote that it has a major shortcoming.
This might seem like a small thing, but with just four months remaining before the board releases an exposure draft for a so-called practice statement on nature reporting, the board is short on time to resolve one of the central building blocks of the project.
That uncertainty matters because while the asset owners and advisers who will have to apply the guidance broadly back the ISSB’s direction of travel on nature, the board itself is struggling to define what it is measuring. At issue is whether the board will change its behaviour or simply generate another compliance exercise.
Nature as a sustainability subset
The board is essentially treating nature-related risks and opportunities as a subset of the wider requirements already set out in IFRS S1 – much as it did with climate in IFRS S2.
The core concepts can be traced back to the Taskforce on Nature-related Financial Disclosures (TNFD); the challenge comes from retrofitting them to the ISSB’s literature.
The first flashpoint is language. The staff have tentatively decided not to define the term “environmental assets” – the stocks of nature, such as forests, water and soil, that companies depend on or affect – because the word “asset” has a precise meaning under the IFRS Conceptual Framework that many environmental assets do not meet.
Using it, staff reasoned, could mislead investors about what belongs on a company’s balance sheet. Their fix was to keep the concept but rename it. However, their proposed label, ‘natural resources and ecosystems’, does not cover atmospheric systems, they concede.
Avoiding the ‘jargon’ trap
For the advisers who will have to put the rules to work, that struggle is not academic.
Pete Smith, principal and head of sustainable investment at Barnett Waddingham, said he “agree[d] whole-heartedly with the need to avoid impenetrable jargon around biodiversity and in the language used on environmental assets”.
Getting the terminology right, he told IPE, is “the difference between this being treated as ‘another’ compliance exercise and support for clients to help them actually take action”.
Asset owners need frameworks that work across an entire portfolio, Smith added, where nature is addressed “on a systems-wide basis” rather than “looking at natural capital assets in a silo”.
The second flashpoint runs deeper: nature does not fit the machinery built for climate. The staff lean towards defining nature-related physical and transition risks separately, mirroring IFRS S2.
But transition, they concede, is messier for nature than for climate, which has a single end state – a lower-carbon economy – where nature has many, spanning biodiversity, water and deforestation.
And it is this mismatch that worries Vanessa Hodge, UK sustainability integration lead at Mercer.
“Unlike climate-related metrics, which are typically based around a measure of current or future carbon, there are many different nature-related metrics, for example covering biodiversity, water usage, deforestation, and pollution,” she said.
Materiality challenges
The materiality of each varies by sector and geography, which “can make it more challenging for asset owners assessing nature risk exposures at a total portfolio level,” Hodge added.
The raw material is also thinner than for climate. Many nature metrics, she said, are currently “derived from a variety of third-party, including AI-generated, sources rather than being reported directly by a company”.
Her advice is not to wall off nature: “Don’t look at climate and nature in a silo. If they can be considered together as part of the broader systemic risks that asset owners cannot diversify away, then addressing them together and understanding the similarities can create efficiencies.”
Support, with caveats
Even so, none of this adds up to hostility to the board’s work. APG, one of Europe’s biggest pension investors, “use[s] a variety of nature-related data in order to implement our clients’ ambition on nature & biodiversity across the portfolio”, said spokesperson Robert Bakker.
He added that the fund “welcome[s] ISSB’s decision to develop complementary guidance aligned with TNFD and will respond to the consultation once published”.
The language is unsettled, the data is thin, and the idea of repurposing concepts from elsewhere has failed to provide a quick fix. The October exposure draft will show how much of that the board has resolved – and whether nature reporting lands as a tool investors can use, or becomes just another form to fill in.
