Opinion Editorial by Dr. Mahmoud Mohieldin originally published in Environmental Finance.
The Tropical Forest Forever Facility is a prime example of the innovation and cooperation needed to revive the development finance agenda, writes Mahmoud Mohieldin
We are less than five years away from the deadline to meet the 2030 Sustainable Development Goals, and we have a steep climb ahead.
Global finance and political leaders will gather in Seville this week to reinvigorate the sustainable financing for development agenda and to find ways to make meaningful progress despite the challenging economic and geopolitical environment.
We are facing headwinds. Cascading environmental disasters have deepened inequities, erasing livelihoods, destroying ecosystems, displacing communities, and widened financing gaps for developing countries, which now total roughly $4 trillion each year.
Crisis after crisis have chipped away at faith in governments and institutions. Multiple countries are pulling back on official development assistance, our global governance institutions are facing new political pressures, and global economic growth is slowing down.
Moreover, the developing world is facing an unprecedented debt crisis, with many countries struggling under the weight of debt service that threatens public services, economic stability, and sustainable development.
But there are bright signs, too. Private financial institutions are sharpening their focus on nature conservation. For example, major institutional investors including Barclays and Fidelity have signed an open letter in support of developing nature-positive transition pathways.
“COP30 is anticipated to focus on forest preservation, climate justice, and scaling up climate finance — making TFFF highly relevant to its agenda”
The Beyond GDP project is creating a framework for governments to develop more holistic measurements of sustainability and wealth. The political and technological transitions that the global system is experiencing have also created fertile ground for paradigm-shifting ideas to sprout.
The Tropical Forest Forever Facility, “TFFF” for short, is among the most exciting initiatives in international development finance in a generation.
It has the potential to reshape how countries and private financial institutions engage in development finance, and critically, it can help prevent the destruction of our planet’s most undervalued but ecologically critical assets, tropical forests.
The idea is this: one-time sovereign loans and guarantees are used to mobilize private capital to set up a $125 billion blended finance fund. This fund is then strategically invested into a diversified portfolio of bonds issued by emerging markets and developing economies.
Sovereign investors earn an annual return equal to their cost of borrowing and their investments are repaid.
Excess returns are used to fund the conservation of moist broadleaf tropical forests.
The World Bank is actively engaged in discussions regarding its potential role in supporting the design, implementation, and oversight of this innovative financing mechanism.
Countries with tropical forests participating in the TFFF measure the change in their tropical forest coverage every year, and are paid for every hectare of protected forest.
The TFFF harnesses capital markets to reward countries for prioritizing the protection of these vital ecosystems, and takes a step toward acknowledging the market value of the hidden services that tropical forests provide, such as fresh water management for entire continents, global weather stabilization, carbon storage, and protecting biodiversity.
Once the bonds mature and investors are paid out with interest, the fund will be converted to a self-sustaining trust, which will continue to pay tropical forest countries for protecting tropical forests in perpetuity.
Unlike other carbon markets that pay countries to reduce severe deforestation, TFFF is a large-scale financing mechanism that rewards countries that have successfully kept their forests standing.
TFFF corrects the error of uncompensated tropical forest protection, and in doing so, provides those countries with a predictable, flexible and ongoing source of revenue that they can invest in other programs that align with Sustainable Development Goals, creating a positive feedback loop.
TFFF is an ambitious and complex initiative that has interested of a wide pool of potential investors for its global reach (more than 70 countries could benefit from payments), its manifold benefits (TFFF also protects biodiversity, conservation and water management) and for its large-scale blended finance model, which offers a budget-neutral alternative to the traditional — and currently diminishing — official development grants.
Brazil — which is hosting COP30 in November — is leading a careful and thorough process of engagement to work through critical design, governance and environmental integrity questions, and to build buy-in with financial institutions, sponsor countries, civil society organizations and Indigenous Peoples – exactly the type of cross-sectoral collaboration that Li Junhua, United Nations Under-Secretary-General for Economic and Social Affairs, and Secretary General of the Fourth International Conference on Financing for Development called for in at the Financing for Development Conference this week in Seville.
COP30 is anticipated to focus on forest preservation, climate justice, and scaling up climate finance — making TFFF highly relevant to its agenda.
Shaping the path forward for the TFFF requires political will, a clear strategic communications effort that articulates the value proposition to priority stakeholders (in particular forest-rich countries, donors, private financial institutions, philanthropies), civil society engagement, as well as targeted engagement with the private sector.
Our international financial architecture is antiquated. It underinvests in global public goods, and it’s not delivering the results we need at the pace we need them.
TFFF is an ambitious idea whose time has come, and whose innovations make it ripe for our current political and economic moment. As global leaders convene in Seville, I will be watching conversations around TFFF with high expectations.
Dr. Mahmoud Mohieldin is UN Special Envoy on Financing the 2030 Sustainable Development Agenda and Co-Chair of the UN Expert Group on Debt, and a former minister of investment of Egypt.
