Tropical forests are one of our most crucial defenses against climate change, but they are disappearing at an alarming rate. A record 6.7 million hectares of rainforest were lost in 2024, largely due to agriculture and human-caused wildfires—resulting in 3.1 gigatons of greenhouse gas emissions.
It is no surprise then that deforestation was a focal point of the United Nations Climate Change Conference (COP30) held in Belém, Brazil last year. There, the Brazilian government announced the launch of its Tropical Forest Forever Facility (TFFF), a $125 billion investment fund designed to encourage the preservation of rainforests in 74 developing countries. Utilizing what is known as a blended finance model, the TFFF draws on public sector contributions to induce private investment. These funds are then invested into high-yield bonds, with a portion of the returns being disbursed to countries that have successfully limited annual deforestation rates in areas of eligible tropical forest—those exceeding 20 to 30 percent forest canopy cover—to 0.5 percent or below. Countries will receive $4 per preserved hectare, at least 20 percent of which must be redistributed to local Indigenous communities.
The structure of the TFFF is undeniably innovative—it flips the economics of deforestation by making forests more valuable when standing than destroyed. But while the TFFF will be a meaningful advance in blended conservation finance, it is unlikely to address the root causes of deforestation. In addition to bearing highly volatile returns that would first go to investors rather than forests, the TFFF does not disincentivize companies from pursuing environmentally harmful investments; it merely encourages them to support marginal conservation efforts.
Of the TFFF’s $125 billion funding target, $25 billion is to come from investor nations in the form of loans, while the remaining $100 billion will be financed by private investors. To make the TFFF a safer (and thus a more attractive) investment, the bulk of the risk will be assumed by the investor nations, meaning their contributions will be used to insure any private losses. Private returns are prioritized over forest payments as well—only after repaying investors do eligible countries receive their share of the funding. The TFFF has acknowledged that in years with poor fund performance, payments to countries may be reduced.
Thus, in order for the TFFF to both consistently deliver returns to its investors and have money left over for forest conservation, the fund must invest in high-yield but risky sovereign and corporate bonds, often in emerging markets. The sample portfolio used by the TFFF in its latest concept note consists solely of emerging market bonds with a weighted average rating of BB+, considered speculative, or ‘high risk, high reward.’ The approximately 3 percent difference between the bonds’ estimated 8 percent returns and the expected 5 percent returns to private investors (similar to other highly rated bonds in developed countries) are the funds that will go toward forest conservation.
But this strategy does not hold for one key reason. The higher returns of the bonds that the TFFF wants to invest in are meant to compensate for their increased risk, not provide a stable revenue source. That is, the existence of the extra 3 percent meant for forest conservation is far from guaranteed, especially in times of economic downturn, political uncertainty, or regional instability. From 2017 to 2022, 11 emerging economies whose sovereign bonds could feasibly be a part of the TFFF’s portfolio—including Argentina, Ecuador, Lebanon, and Zambia—defaulted on their debt. JPMorgan’s Emerging Market Corporate Bond Exchange Traded Fund, a portfolio containing over 1,000 similarly ‘high risk, high reward’ bonds, has only had a 3.63 percent average annual return since its inception in 2012—far below the level needed for the TFFF to sustain forest payments. The TFFF may not be as financially promising as it first appears to be.
More fundamentally, the TFFF is predicated on the flawed premise that the primary factor limiting global climate goals is the so-called “funding gap”—an estimated $700 billion per year that must be channeled toward the protection of forests, biodiversity, and other climate projects. This line of reasoning therefore justifies public-private partnerships and substantial concessions (as is the case with the TFFF) to private investors in order to get their involvement. In reality, blended finance mechanisms like the TFFF may actually be more expensive than a solely public project, since governments usually face lower borrowing and administrative costs than the private sector.
As a result, the TFFF does not discourage companies from pursuing investments that are environmentally harmful, and, in fact, actively invites polluting corporations into the climate reform discussion. For instance, Barclays, a leading British bank, is one of the primary private supporters of the TFFF. But the TFFF cannot hold Barclays accountable for its loans to corporations responsible for environmental degradation. Brazilian meatpacker JBS, just one of many companies responsible for deforestation in the Amazon, earned Barclays $1.7 billion between 2018 and 2023—only a mere fraction of the bank’s numerous environmentally destructive investments. Even if the TFFF succeeds in achieving its funding goals, it would not resolve the perennial issue—that the firms and institutions supporting it still channel immense amounts of money to the kinds of investments the fund is trying to discourage.
Nonetheless, there are reasons to be optimistic. The World Bank was announced as the trustee and interim host of the fund, and the TFFF has already raised $6.7 billion at COP30, with major contributions from Brazil, France, Germany, Indonesia, and Norway, indicating some willingness from developed countries to take initiative on addressing the climate crisis. Compared to previous blended conservation finance programs like the Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (REDD+) framework, which pays developing countries that reduce forest-related carbon emissions, the TFFF makes several meaningful advancements. While there are doubts about the exact mechanism behind the distribution of payments to Indigenous groups, the inclusion of Indigenous people at all—who play a crucial role in protecting tropical forests around the world—represents one such improvement, given that projects like REDD+ have largely sidelined Indigenous communities. Likewise, the TFFF’s preservation of the forests themselves instead of just their carbon content represents a more cohesive view of the importance of forests to global biodiversity.
It remains to be seen whether the TFFF can move beyond the constraints of its current design or inspire future programs less tethered to the whims of private finance. While there is undoubtedly value to initiatives like the TFFF, governments should instead focus on future policies that directly address the root causes of deforestation, such as limiting agribusiness, mining, and logging, or increasing public funds for climate initiatives.