Scaling forest finance: Leveraging trade relationships and policy enablers for tropical forests

At COP30 in Belém, our official side event in the Blue Zone focused on how to scale forest finance. It explored reasons for optimism, but also the risks that can undermine positive change. The event – a collaboration between Trase, Global Canopy, Stockholm Environment Institute,  the Basque Centre for Climate Change (BC3), the Climate Policy Initiative (CPI) and Kreditanstalt für Wiederaufbau (KfW) – was an opportunity to connect, challenge assumptions and unlock imagination to drive positive change for tropical forests.

The following insight covers just some of the insights and interventions offered at the event.

Juliano Assunção, Executive Director, Climate Policy Initiative (CPI/PUC-Rio)

Juliano Assunção explored the financial mechanisms that are needed to drive action for forests. “The current finance landscape is diverse but remains far below what is needed to realize the full potential of the forest agenda. To meet global goals, financing must focus on jurisdictional, results-based mechanisms. While existing instruments like REDD+ and TFFF address deforestation and forest conservation, there is no large-scale mechanism for restoration.”

To fill this gap, CPI/PUC-Rio has worked on a Reversing Deforestation Mechanism (RDM) – a performance-based and jurisdictional framework for large-scale carbon removals to form a “complete and flexible forest finance architecture,” intended to complement the jurisdictional REDD+ and TFFF.

“We must create an understanding of what’s possible. Each country has its own challenges, but scale is about being comprehensive, and being flexible enough to adapt to those different challenges.”

Maria José Sanz, Scientific Director, Basque Center for Climate Change (BC3)

Many countries have set ambitious targets for forest transitions, but are well off track to meet those targets. Maria José Sanz focused on the policy actions needed from individual countries. 

“The necessary systemic transformation will only happen if driven by comprehensive policy mixes building on multiple policy domains, including agriculture, forestry, environment, energy and food.”

Researchers at BC3 have explored the forest-related policy mixes of several countries, together with in-country experts in those countries, to identify combinations of policies that have proven successful for driving land use transitions. BC3 has also analysed the drivers of deforestation, showing that both increasing affluence and population growth are primarily responsible for the observed increase in managed forest areas worldwide in recent decades. Changes in global trade patterns also have an impact, so effective action requires understanding all the factors driving deforestation, both nationally and internationally.

“If more countries are able to carry out analyses of their national policy mixes and their public expenditure for land use transitions, this will lead to improved understanding of priority actions for strengthening national governance for forest transitions. It may also contribute to improved understanding of how international and action may be combined for the best results on forest transitions on the ground.”

André Vasconcelos, Global Engagement Lead, Trase

The interdependence on different countries for both trade and food security formed a key part of the intervention from Trase Global Engagement Lead André Vasconcelos.

“65% of all Brazilian soy exports go to China. Almost 70% of all Chinese soy imports come from Brazil. There’s a similar story in the Côte d’Ivoire cocoa imports – almost 60% goes directly  to the EU. And then almost 50% of all the EUs cocoa imports come from Côte d’Ivoire. This increase in dependence between countries on trade and food security brings with it very strong risks. Therefore environmental impacts are a shared problem between the producing country and the importing country.”

Trase’s analysis also shows that deforestation is not evenly distributed. It is highly concentrated in certain areas, which brings opportunities for targeted action.

“75% of China’s soy deforestation exposure from Brazil comes from just 73 municipalities. So the data really provides the jump off place for targeted action. The same applies for EU imports of cocoa from Côte d’Ivoire.”

“Deforestation is a shared problem, with shared responsibilities that require joint action. By understanding how links to deforestation are connected via trade we can strengthen strategic arguments for why (and also how) more countries can be part of a collective solution. The TFFF is a critical platform to boost collaborative approaches and unlock actions.”

Reasons for optimism

The event asked: Where can we look for optimism? And what are the dangers that could undermine efforts to scale up finance?

Andrea Hauser, Member of the Management Committee of KfW Development Bank

“We have instruments that we as a Development Bank can use to help create finance. It’s about building trust because the perceived risks of projects are often higher than the real risk that any investor faces. So transparency helps to manage those risks and helps build the trust of investors.”

The eco.business Fund is one example of an impact investment fund initiated by KfW Development Bank and Conservation International. It promotes business and consumption practices that contribute to biodiversity conservation, the sustainable use of natural resources, climate change mitigation, and adaptation to its impacts. “We use a lot of structured funds, public money that then derisks private money like the eco.business Fund.”

“But when talking about blended finance one thing is key – standardisation. If you really want to drive change at scale you need a standardised roadmap. If every project is a single project it becomes very complex. Standardisation can drive up investment at scale.”

Emanuel Lins, from DBIO of the Ministry of Foreign Affairs of Brazil

“TFFF offers a huge opportunity. We are four different Brazilian Ministries working together to deliver the TFFF and my greatest hope comes from that. We now have a project that enables us to provide long term finance for forests at scale. We want that money to be additional and we want that money to reach the local communities, people who are on the ground. But finally we have  an innovative private finance mechanism that helps us remunerate forests that are standing.”