I'm not complaining, but environmental damage appears to actually be healing, rather than harming my party and me.

I checked based on my last battle report. They took no damage but were all wounded from a previous fight. Less than an hour later, I get a notification reporting 11 points of environmental damage. However, instead of losing health, the entire party had gained exactly 11 points of health.

This is a hot, breathable planet. Kiffu to be exact.

I didn't really notice at first, because I was out hunting and my party's are always a bit dinged up. But it started to seem like they were suspiciously robust after taking environmental damage.

Is this a known issue? Or should I report it as a bug?

Environmental damage is currently a "daily job" meaning that it runs once per day and is timed to happen near the same time as the daily HP regen job. Since Hot Breathable planets only do 5% environmental damage, that 5% was likely just overcome by the daily 10% HP regen.

While there are plenty of thoughts around how environmental damage could likely be made more interesting, I'd consider this as "working as intended."

Cool. So long as it's all kosher, I'm okay with that.