- Forest finance remains low, largely dependent on public funds and flowing mainly to richer countries, even as deforestation pressures are highest in tropical regions.
- Brazil has proposed a new forest financing mechanism, the Tropical Forest Forever Facility, which aims to support standing natural forests for climate mitigation, an approach different from existing mechanisms.
- However, without addressing equity, weak monitoring systems, and outdated forest definitions, the initiative may fall short of delivering meaningful change.
- The views in this commentary are that of the author.
Forests have been in the spotlight recently. In October, the United Nations Environment Programme (UNEP) State of Forest Finance report reiterated that existing financial flows to forests are significantly short of meeting climate, biodiversity and land degradation-related targets.
In November, during the 30th Conference of the Parties (COP30) of the United Nations Framework Convention on Climate Change (UNFCCC), Brazil launched a new $125 billion forest financing mechanism, the Tropical Forest Forever Facility (TFFF), which aims to inject funds into tropical forests through a fundamentally different approach to forest finance.
This launch comes at a time when existing forest finance remains insufficient to support climate action. Financial flows remain largely public in nature and are skewed towards developed countries.
UNEP’s report found that financial mobilisation needs to more than triple, from $84 billion in 2023 to $300 billion per year by 2030.
At the same time, harmful financial flows of $8.9 trillion continue to support deforestation-linked activities, particularly commodity production such as soy, palm oil, beef, rubber, coffee, and cocoa. Even though deforestation rates remain the highest in tropical developing countries, the total existing funding, from domestic and international sources, is skewed towards advanced and high-income countries.
Additionally, in some tropical countries, domestic spending on forests exceeds the international finance they receive. For instance, India spent over $7 billion in 2023, driven by the Finance Commission’s ecological transfers and compensatory afforestation policies, the highest among tropical countries and the third-highest globally. It dwarfed the $81 million inflow in that year.
What the forest facility promises
TFFF attempts to shift the focus of forest finance from avoided carbon emissions to conservation of existing forests. It promises to supplement existing funding for tropical countries and to increase private-sector contributions. It is structured like an endowment and aims to mobilise $25 billion from governments and philanthropies and $100 billion from institutional investors, using returns on this capital to pay participating countries. However, concerns remain about its fundraising prospects.
Unlike existing instruments such as the Reducing Emissions from Deforestation and Forest Degradation (REDD+) and carbon markets (CMs), which rely on market-based mechanisms and have been controversial for some time, TFFF is structured as a Payment for Ecosystem Services (PES) scheme.
Market-based approaches work by converting carbon — a market externality — into tradable carbon credits (a metric tonne of carbon sequestered). TFFF, instead, incentivises countries to maintain forests for their ecosystem values and pays $4 for each hectare of standing forest (defined as one-hectare units with 20-30% canopy cover).
By doing so, it incentivises high forest cover and low deforestation (HFLD) countries, which are poorly served by avoided deforestation-focused instruments like REDD+. Although TFFF is focused on climate mitigation and uses standing forests as a proxy for carbon sequestration, its design also allows participating countries to invest in existing national forest programmes, which can be relevant for climate adaptation. When adaptation accounts for only 15% of the total forest finance, this is a welcome move.
A new direction and challenges
TFFF’s design signals a shift in how forest finance is imagined. It places tropical countries at the centre and seeks greater private-sector participation. It moves beyond avoided emissions as the sole metric of value and proposes a scalable alternative to the controversial market-based mechanisms. Yet, the three decades of international forest finance mechanisms hold essential lessons. Whether TFFF succeeds will depend on how it addresses long-standing challenges.
Broadly, there are three challenges which emerge from equity concerns; biases built into satellite-based evidentiary Measurement, Reporting, and Verification (MRV) regimes; and definitional issues that have persisted from the mechanisms’ inception.
Forest finance has been persistently weak on equity as questions of who conserves forests, at what cost, and who benefits from remain unaddressed. The REDD+ implementation has largely failed to address these equity concerns. The national policies and processes created to operationalise REDD+ have ignored entrenched injustices and inequalities faced by marginalised communities. Despite safeguards, the institutionalisation process for REDD+ has not addressed the concerns of marginalised communities or recognised their traditional practices and institutions. More worrying is the trend towards re-centralisation of forest governance, risking the decades-old progress in decentralisation and democratisation.
The carbon markets, on the other hand, have faced a high project abandonment rate and have led to meagre benefits for communities. The direct monetary benefits from credits are captured by project-initiating companies and international NGOs, as a recent study in India found.
The current mechanisms burden local communities with internationally agreed-upon conservation goals while invisibilising their needs and benefits. The TFFF requires at least 20% fund-sharing with indigenous and local communities and gives countries the flexibility to design their own fund-sharing mechanism. Countries will need to engage with communities in an equitable manner and institutionalise participatory and accountable structures for forest finance instruments to be successful.
The limitations of the international forest finance evidentiary regime — a set of protocols that dictate how carbon offsets are calculated — can affect its performance. For instance, mechanisms like REDD+ use a deforestation baseline and extrapolate it using historical deforestation levels to estimate how much deforestation could have occurred. This estimate is then used to quantify avoided emissions. This approach is very sensitive to practices like baseline inflation — setting a high baseline to overestimate avoided emissions. These projections can be inflated by unrealistic assumptions that ignore political and social factors, raising questions about whether the claimed benefits would have occurred anyway. A recent study on REDD+ outcomes in six tropical countries found that while REDD+ projects were expected to generate 90.5 million carbon offset credits, only 6.4 million or 7% of those credits could be attributed to REDD+.
Although the TFFF avoids the issue of baseline inflation by focusing on standing forests, its heavy reliance on satellite-based canopy monitoring brings new challenges. Satellite images work best when deforestation happens suddenly and is concentrated in a particular region, but they struggle to capture gradual forest degradation or regrowth. Moreover, an excessive focus on canopy renders all other ecological and social aspects of forests invisible. Combining satellite-based canopy monitoring with ground-based observations and community-led mapping can enhance the quality of geospatial analysis, incorporate the social dimensions of forests, and strengthen participatory governance.
Many developing tropical countries that have instituted forest decentralisation policies since the 1980s can leverage the community institutions created under these policies for this purpose. For instance, while India has joined TFFF only as an observer for the time being, its forest decentralisation legacy of 1,20,000 Joint Forest Management Committees and 121,000 Community Forest Resource Rights committees is an example of this existing institutional infrastructure.
Defining forests
The third major issue is how forests are defined. It involves contested decisions on minimum area, canopy cover and height, and directly impacts what is recognised as forest worthy of intervention and what is not. For instance, the Forest Resource Assessment (FRA), a global forest monitoring exercise led by the UN Food and Agriculture Organization (FAO), changed the definition of forest in 2000, reducing the minimum height from 7 to 5 metres, the minimum area from 1 to 0.5 hectares, and the minimum canopy cover from 20% to 10%. As a result, the global forest area increased by nearly 300 million hectares between 1990 and 2000, without any material change on the ground. These definitional thresholds can also open up ecosystems that do not support trees (such as grasslands) to tree-planting, damaging the unique ecological functions and social relationships they maintain.
The FAO created the first set of forest definitions in 1948 to assess the potential for wood harvesting to address post-war concerns about a timber shortage. Since then, forest management objectives have expanded to include biodiversity conservation, climate change mitigation, and land restoration and are increasingly seen as complex adaptive socio-ecological systems. Official forest definition, however, has remained largely the same.
Moreover, these definitions fail to distinguish between natural forests and monocultures, despite vast differences in ecological function and climate benefits. While these definitions serve the purpose of a global forest regime focused on carbon sequestration well by allowing cross-country standardisation, they risk a skewed representation of forests. To avoid this, a dynamic system of multiple forest definitions, each with specific objectives of forest management, needs to be created. The TFFF focuses on natural forests and restored forests on historically forested lands, which is a welcome step.
TFFF reflects renewed global interest in forests at a time when finance remains far below what is required to meet climate, biodiversity, and land restoration goals. This moment offers an opportunity to rethink how forests are valued and governed. However, without addressing the equity and definitional challenges, this renewed interest in forests and forest finance is unlikely to yield results and may undermine ecological integrity and community well-being.
Ishan Kukreti is the Programme Lead, Adaptation and Resilience, Sustainable Futures Collaborative, a New Delhi-based research organisation.
Banner image: Community tourism inside Manas National Park, Assam. India’s long-standing forest decentralisation framework, built around Joint Forest Management and Community Forest Resource Rights committees, provides existing institutional infrastructure. Image by Ishan Kukreti.
