The international baseline for environmental reporting is evolving following the International Sustainability Standards Board’s (ISSB) compromise on its nature timeline.

By opting for a voluntary “Practice Statement” rather than a mandatory IFRS S3 standard, the ISSB has sought a pragmatic middle ground, drawing varied market responses.

While some see this as a necessary step to protect ongoing international adoptions, others argue the decision dilutes investor leverage.

Hing Kin Lee, vice president of nature at NextEnergy Capital, notes that without a dedicated standard, stewardship efforts face immediate challenges across complex supply chains.

“Our view is that the market pushback reflects a lack of preparedness rather than a lack of relevance,” Lee told IPE. “Many organisations are still trying to understand how to address nature-related risk […] From the perspective of an early adopter, this outcome is disappointing.”

Lee adds: “As a market leader, we will continue to apply [Taskforce on Nature-related Financial Disclosures] TNFD voluntarily, as we believe this is where the market is ultimately heading. However, without a dedicated standard, we have weaker leverage to require consistent disclosure or contractual obligations across the value chain. This notably weakens investor advocacy and stewardship, particularly in higher-risk areas such as manufacturing and raw material extraction.”

The interoperability bridge

Conversely, Neuberger Berman argues that bundling nature into an overarching framework avoids isolating environmental risk from existing climate strategies.

The asset manager supports bypassing a standalone standard, framing the practice statement as a reasonable compromise where nature-related dependencies are addressed through existing Sustainability Accounting Standards Board (SASB) sector standards embedded within IFRS S1.

The firm believes this approach keeps data comparable and grounded in financial materiality, particularly for high-impact sectors like metals and mining (focusing on biodiversity impacts in sensitive habitats) or meat, poultry, and dairy (supply chain land use).

With adoption underway in jurisdictions like Japan, Neuberger Berman maintains the board was right not to derail implementation. Instead, the firm emphasises driving voluntary adoption of S1 and S2 to provide investors with core material information to efficiently allocate capital.

For companies wishing to provide double materiality reporting, the manager notes it can still use the EU’s Corporate Sustainability Reporting Directive (CSRD).

Kristina Wyatt, executive vice president at The Conservation Fund, agrees the statement forms a functional “bridge” to the CSRD – where ESRS E4 mandates biodiversity disclosures – largely because both frameworks draw on the TNFD.

Wyatt notes the proposed statement is already receiving significantly more market attention than historical management commentaries, indicating institutional seriousness.

However, she highlights the benefit of this integrated approach, noting that a standalone standard risked introducing new, fragmented, and potentially “overlapping” disclosures that could confuse corporate compliance teams.

Data deficits and fiduciary realities

For long-term institutional asset owners, however, the absence of a hard baseline creates immediate practical hurdles for portfolio risk modelling. This data deficit directly shapes oversight.

In the London Pensions Fund Authority’s (LPFA) operational context – working via a fully pooled model with Local Pensions Partnership Investments (LPPI) – limitations around nature data have prompted a focus on basic disclosure and manager alignment rather than hard metrics.

At the same time, the LPFA supports engagement with standard-setting frameworks.

Despite these hurdles, the fund’s latest Investor Climate Action Plan Progress Report highlights that it continues to expand its environmental mandate, maintaining its target of investing a distinct 5% of its total assets into climate solutions and environmental opportunities.

The fund told IPE that while “less consistent data can make detailed risk assessment more challenging, it remains fundamentally robust in its fiduciary intent.”

For asset owners operating via delegated pool managers, the emphasis remains on holding investment partners accountable to high standards of active stewardship, regardless of rule-making noise.

The outlook

Ultimately, the ISSB’s pivot highlights the delicate balance defining environmental reporting. By choosing a pragmatic middle ground over a mandatory baseline, the board exposed a divide between managers demanding rigid teeth for supply-chain stewardship and those prioritising smooth compliance and interoperability.

Importantly, the strategy sidesteps the risk of structural drafting errors – such as those that dogged IFRS S2 – while bypassing a sub-glacial formal rulemaking pace.

Yet, as the LPFA’s targeted allocations demonstrate, the lack of an immediate, hard-coded standard does not freeze institutional action. It simply leaves early adopters and pragmatists alike to forge ahead, navigating the gap between immediate fiduciary mandates and an evolving global baseline.

A draft of the practice statement is expected in October.

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