Preservation mechanism could turn trees into financial assets - Valor International

The new financial mechanism under negotiation to fund tropical forest preservation signals a shift in how the market views trees. According to the group preparing to launch it at COP30, the UN climate conference in Belém, the Tropical Forest Forever Fund (TFFF) will compensate tropical nations for maintaining natural vegetation, not only for refraining from cutting it down. If the idea takes hold, forests that landowners often treat as liabilities—barriers to converting properties into crops or pasture—will be recognized as financial assets.

Coordinated by Brazil alongside five other developing nations and six developed countries, the TFFF is designed to gradually replace transitional systems now in place, particularly once Brazil achieves its goal of zero deforestation by 2030, should it succeed. Initiatives such as the Amazon Fund, for instance, still operate on the logic of “avoided deforestation” and would likely fade over time. In their place would come permanent systems, such as the TFFF, rewarding countries that actively conserve their forests without forcing them to rely on the threat of devastation to receive aid.

By keeping carbon in the ground and helping to slow global warming, the TFFF would represent not only innovation but also an unprecedented effort on a massive scale. “We are talking about a fund of something like $125 billion, of which $25 billion would come from the initial contribution of the sponsoring countries and another $100 billion from market fundraising,” says Rafael Dubeux, deputy executive secretary of the Ministry of Finance and one of the architects of the proposal.

If secured, this backing could provide an estimated $4 billion annually to tropical nations. The TFFF gains even more prominence in today’s climate diplomacy landscape, where implementation of the Paris Climate Agreement has been sluggish, countries have made limited progress in cutting greenhouse gas emissions, and the United States—the largest historical emitter of CO₂—has withdrawn from the accord.

Although negotiated outside the formal scope of the climate convention, the new fund could become the centerpiece of the conference—even if it is not officially part of it. “The design of the fund is well-matured, but it is not 100% finalized yet. We are almost there. I think that in the coming weeks we should be able to begin this engagement stage to get the first countries to contribute to the fund,” says Mr. Dubeux. “The construction of the entire fund is quite complex. It involves creating the fund, defining its governance, appointing an operating agent, setting risk classification criteria, and establishing the investment policy.”

Brazil, Colombia, Ghana, Indonesia, Malaysia, and the Democratic Republic of Congo—the beneficiary nations with forest biomes—are now working on these details with Germany, the United Arab Emirates, the United States, France, Norway, and the United Kingdom, which are expected to serve as pioneering investors. The expectation is that this core group will provide sufficient initial backing to lend credibility to the fund and enable it to attract other investors, both private and public.

The main distinction between the TFFF and the Amazon Fund is that the latter operates under the REDD+ mechanism (Reducing Emissions from Deforestation and Forest Degradation). Under this model, a country estimates the deforestation likely to occur within a given period. If it succeeds in reducing that projected destruction, it is compensated for the equivalent tonnes of CO₂ emissions avoided, in the form of carbon credits. The country or entity that purchases the credits can then deduct the same amount of CO₂ from its own emissions account.

The TFFF, by contrast, would not generate carbon credits. It is designed as a trust fund, modeled on the income-generating mechanisms used by major U.S. universities. These institutions utilize reserves, known as endowments, to underpin their financial operations and ensure long-term financial stability.

“In the TFFF, the amount we would raise would be invested in capital markets,” explains André Aquino, special economic advisor to the Ministry of the Environment. “The return on this investment will be deducted from the payment to the initial investors, and the remaining ‘spread’—the difference—will be distributed. We expect this difference to amount to about $4 billion annually,” he says.

Mr. Aquino estimates that, given it is home to the world’s largest tropical forest, Brazil would receive about $900 million annually once the TFFF is operating at full capacity. That figure is currently three times the discretionary budget of the Ministry of the Environment.

Unlike systems based on carbon credits, the TFFF would compensate tropical nations on a per-hectare (an area of land measurement equal to 10,000 m²—about the size of two and a half acres) basis for preserving forest areas. The only stipulation so far is that 20% of the resources must be allocated directly to Indigenous and traditional communities living in these regions.

According to the fund’s architects, the mechanism must provide each country with the flexibility to decide how best to protect its forests. Some may prioritize surveillance and enforcement, while others could channel the money into economic incentives for conservation. Independent experts argue that the TFFF also addresses a longstanding flaw in global CO₂ reduction policies: a tree preserved in one country generates benefits for the entire planet, not just the nation in which it stands.

“Since reducing deforestation provides a diffuse benefit to society as a whole, it is difficult to present the preservation bill to any single payer,” says André Guimarães, executive director of the Amazon Environmental Research Institute (IPAM). “The TFFF is designed to capitalize and distribute resources fairly to those countries that already pay for preservation, because preservation benefits the world,” he argues.

For Leonardo Sobral, director of forests at the Institute of Agricultural Forest Management and Certification (Imaflora), the fund’s early years will be crucial in determining its credibility. “Civil society needs to be very attentive to how the implementation process unfolds and how the resources that arrive in Brazil will be used,” he warns. “Will there be compensation for private lands? How will that work? And how will traditional peoples be compensated? What government programs will ensure that public forests are preserved structurally and permanently? All of this needs careful planning,” says Mr. Sobral.