Brazil's forest finance plan takes shape ahead of COP30

Brazil has sharpened the framework for a much-anticipated fund to protect the world’s tropical forests that offers a new model for climate finance in a third draft plan, called Concept Note 3.0, officially published Thursday. The Tropical Forest Forever Facility, or TFFF, aims to channel large-scale, long-term finance into conservation by allocating it to countries that continuously maintain healthy forests, such as Indonesia, the Democratic Republic of Congo, Malaysia, Gabon, and, of course, Brazil itself. It is set to launch at the 30th United Nations Climate Change Conference of the Parties, or COP30, in Belém, Brazil, this November. The basic idea is simple: Countries home to tropical rainforests can earn money for each hectare they conserve. The funds are generated through a large investment fund that expands upon seed money from donor countries. And instead of returning all profits to the investors, around a third will be held back and funnelled into those tropical countries to help protect their rainforests. Experts have said that the success of TFFF is a litmus test for the success of the Brazilian COP30 presidency, both because of the plan’s ambition and the fact that Brazil has put the TFFF front and center in its priorities for the conference. “I think the Brazilians did a good job of listening to the feedback around the key issues that were raised by civil society and indigenous peoples,” said Andrew Deutz, the managing director of global policy and partnerships at the World Wildlife Fund. Deutz has been in the room with the Brazil team from the start, and he has advocated for civil society positions and observed the ups and downs of this facility’s evolution. In a time of decreasing official development assistance, Brazil is pushing for the fund to generate up to $4 billion in payouts for eligible countries per year — more than Belgium’s 2024 total ODA budget — and a total fund size of $125 billion, which is roughly double the budget of the former U.S. Agency for International Development. This latest draft inks in some expected details: The fund is set to be managed by the World Bank, and the price per hectare of intact forest will be $4. It also adds new and tighter rules around which countries are eligible, consequences for not following certain guidelines, and stricter transparency and accountability mechanisms. So what are the big changes in this draft? Indigenous peoples and local communities: The most significant addition is a specific mechanism for Indigenous peoples and local communities to benefit from 20% of the proceeds each country gets. Countries will have to set up national trust funds or forward the money directly from national governments into an Indigenous peoples steering committee, which then decides how to allocate further. If this access is not established according to the rules, payments from the TFFF can be suspended. Sidestepping national governments: The new concept note also created an alternative pathway for money to flow that would not necessarily rely on national governments to disseminate funds. Instead, an existing international agency such as the United Nations Development Programme, or UNDP, would disseminate 20% of the funds directly to Indigenous peoples and local communities, and the other 80% to the forest sector, as outlined by the TFFF. This avoids going through the politics and bureaucracy of a central government and would mirror the way that the Global Environment Facility or Green Climate Fund works with implementing agencies. The purpose is to make sure that the funds are spent as intended, and it will be followed up by a full disclosure of anticipated spending plans and annual reports back to the TFFF. As for which international agency will get this job, that will be up to a bidding process. The World Bank has already declined the role. “The World Bank seems to be wanting to keep the secretariat function and its hosting responsibilities as minimal as possible,” Deutz said. “I think they see this as a big new experiment, and so they want to limit their institutional investment.” Counting flames: The draft also responds to concerns about what is counted as forest degradation. There are many things that can degrade a forest: logging, infrastructure projects, pests, diseases, droughts, and storms. But the TFFF only counts degradation caused by forest fires when they penalize a country, largely because it’s the easiest one to detect from satellites. Deutz told Devex that everyone involved in the TFFF has agreed that this is not adequate, from civil society to donor countries. With this fire-only model, total degradation will be undercounted. However, both experts and civil society have not been able to agree on a better approach, according to Deutz, so they are creating a technical advisory committee that will continually review forest degradation metrics and recommend stronger requirements over time. Beyond the rainforest: Another adjustment is the inclusion of what negotiators are calling “incompleteness risk” — that by protecting one ecosystem, deforestation and degradation move into other ecosystems, such as savannahs. The term is technically synonymous with the concept of leakage. Addressing incompleteness risk is a new way of addressing the concern that protecting tropical forests could just push deforestation elsewhere. The new draft includes a provision that if there is a significant uptick in the conversion of other ecosystems into agriculture or other types of non-native uses, the country must report that and could lose its TFFF benefits. Fossil fuels are out: A long unknown element of the TFFF is whether fossil-related assets could feature in the facility’s investment portfolio. The latest draft includes a section on investment exclusions that explicitly states that there will not be any investment in activities that drive deforestation or in fossil fuels. That specifically means no peat, coal, oil, or gas. “This was really the net-zero transition playing out in real time,” Deutz said. “They were trying to balance wanting to have this environmentally friendly portfolio with maximizing return, so they can meet the promise to pay $4 per hectare, with investing as much as possible in developing countries, so it contributes to the NCQG goals. Trying to balance all of that is really hard, but it looks like they’re confident enough that they can meet all of those objectives.” An attractive option For donor countries, the changes may make the fund more attractive, even as official aid budgets remain tight. The key sponsors for the TFFF have always been Europe, the United Kingdom, Germany, and Norway. Until January, the United States was also on that list. Former U.S. President Joe Biden even endorsed the plan. But under Donald Trump, the U.S. has withdrawn from these negotiations. Meanwhile, the United Arab Emirates is engaging in conversations with the TFFF, as well as Saudi Arabia and Kuwait, bringing some new big names to the climate finance discussions. In July, China also signaled its support for Brazil on the facility. “To actually have the UAE seriously at the table, and possibly the Saudis, would be a really interesting change in the dynamics in the climate finance world,” Deutz said. While it’s too soon to tell their reactions to the latest draft, Deutz thinks that the clearer safeguards are expected to help them make the case to domestic audiences. The TFFF could be attractive to these countries for another reason as well: The OECD is currently in discussions about shifting how it accounts for blended finance. It may change it so that any money that goes to ODA-eligible countries — even if it’s in the form of an investment — could be counted as ODA. As the EU scales back its development finance and pushes for a “Europe First” take on ODA, the TFFF could offer an investment-led way to check off its ODA boxes. “The financial magic here is that these governments do not need to pull that out of ODA budgets because it’s not grant money that they’re putting it. It’s an investment that they’re getting back with interest,” Deutz said. What’s next Concept Note 3 has laid out the final text on about 90% of the issues, Deutz said. The TFFF still needs to finalize the financial model — including how much is going to be invested and how, and therefore what credit rating the fund will get. Those issues are supposed to be finalized in October, at which time we can expect another update. The final move to operationalize the facility will come in November at COP30.