Tropical Forests Forever Facility: A promising approach to global forest protection – if the details are done right

Photo: J. Bötling / Brot für die Welt

Tropical forests are vital for the global climate – yet deforestation continues unabated. With the Tropical Forests Forever Facility (TFFF), Brazil now wants to break new ground: an innovative global financing mechanism that financially rewards forest conservation while mobilising private capital for climate and biodiversity protection. This sounds promising – but whether the TFFF will actually mark a turning point depends on how it is designed. This article examines the role Germany can play in shaping the initiative and the conditions under which a financial contibution would be appropriate.

The TFFF has great potential

Four years after the commitment announced in Glasgow to halt global deforestation by 2030, it is clear that we are still a long way from achieving this goal. Every year, millions of hectares of tropical forests are lost – with serious consequences for the climate, biodiversity and local communities. This increases the hopes that experts are currently placing in the planned Tropical Forests Forever Facility (TFFF) all the more. This new global initiative, initiated by Brazil, aims to mobilise additional funds for global forest protection – complementing public subsidies for international climate and biodiversity financing, which continue to play an important role. Through the TFFF’s innovative financing mechanism, tropical forest countries will in future receive payments for every hectare of their forests that is preserved. These payments would not further increase the debt burden of tropical forest countries, some of which are heavily indebted, as the funds would not have to be repaid and could be used flexibly for nature conservation. Crucially, at least 20 per cent of these payments would go directly to local and indigenous communities, who are at the forefront of forest protection.

If the TFFF is designed effectively, it could play a catalytic role in global forest conservation: for the first time, preserving forests could be more economically attractive than deforestation. According to expert estimates, the TFFF could increase global forest conservation funding by around two-thirds – a much-needed boost, as public funds alone are far from sufficient to achieve climate and biodiversity goals. However, innovative approaches such as the TFFF are not a substitute for government support for nature conservation and other regulatory measures, but rather a crucial addition to them. The TFFF alone cannot solve the global deforestation crisis; more is needed for that. However, it would be one of several key building blocks that could lead to a decisive turning point. The German government is currently considering participating in the TFFF – and that is and that is the right and necessary course of action. Ultimately, protecting tropical forests is also in our own interest: they are a key carbon sinks, stabilise the global climate – and thus safeguard our future in Germany and Europe.

How the TFFF is supposed to work

The TFFF is an initiative of the Brazilian government that is being developed outside the official negotiations at the UN Climate Change Conference. Its official launch on 6 November 2025 is considered a done deal. Whether the launch event will achieve the momentum desired by the Brazilians remains to be seen and depends on how many countries – both tropical forest countries and sponsor countries – sufficiently commit to it, join it and contribute to it.

Specifically, around 25 billion US dollars in public funds are to be used to mobilise around 100 billion US dollars in private capital via a newly created investment fund – the Tropical Forest Investment Fund (TFIF) – and invest it on the capital market. This one-off investment is intended to generate long-term returns, from which up to 4 billion US dollars can be paid out annually to tropical forest countries as compensation for preserving their forests – hence the word “Forever” in the initiative’s name. Tropical forest countries will only have access to these payments if they can demonstrate that their deforestation rate has fallen below a specified threshold (0.5%), that they have transparent mechanisms for the use of funds and that they apply reliable methods for monitoring forest areas. In this way, the TFFF is to provide a performance-based, long-term financing model that is to generate stable revenues for forest conservation while mobilising private capital for climate and biodiversity protection.

The devil is in the details

Federal Environment Minister Carsten Schneider has already publicly endorsed the TFFF and promised a German contribution. In this context, the environmental and development organisation Germanwatch is calling for Germany to play an active role in shaping the TFFF and for Chancellor Friedrich Merz to make a clear political commitment to the initiative in Belém – including the prospect of German investment in the TFFF. However, an actual financial commitment – i.e. the provision of funds – may only be made once it has been ensured that German investments in the TFFF will not flow into bonds that could potentially harm the climate, biodiversity or human rights. Only once this has been established in a binding manner and without loopholes can Germany officially confirm its contribution.

Current information points to a possible contribution from Germany of between one and one and a half billion euros – most likely in the form of guarantees and low-interest loans. However, if all points of criticism are addressed in the final design of the TFFF, an appropriate German contribution should be more in the region of two to two and a half billion euros. A contribution of this magnitude would very likely secure Germany a seat on the future TFFF decision-making body – and thus open up the long-term opportunity to actively shape the final design of the initiative. Even the credible prospect of a contribution of this magnitude can significantly increase Germany’s leverage. The clearer the German government signals its interest in future financial support, the greater its potential influence on the final design of the TFFF – even before formal participation. Germany should then use this leverage in particular to anchor high environmental, social and transparency standards in the TFFF.

We consider the following important points to be relevant in the context of a possible German financial participation in the TFFF:

1. High environmental and social standards for investments are essential

In version 3.0 of the TFFF concept, it was announced that an exclusion list for environmentally harmful investments would be introduced. However, the revised version (concept version 3.1) now shows that this list will only be decided by the TFIF steering committee after the official launch of the initiative. It had been expected that the list and its criteria would be available and published before the launch. In addition, as things stand at present, the exclusion list will apparently only apply to corporate bonds and not to government bonds – even though the latter could make up the largest part of the investment portfolio. Furthermore, the planned exclusions relate exclusively to environmental criteria, while social requirements, such as the protection of human rights, in particular the rights of indigenous peoples, or labour standards, have not yet been taken into account.

Without a publicly accessible exclusion list and an environmental and social risk management system in line with international standards, it remains unclear how strict and binding the criteria actually are and whether there will be sufficient transparency about the investments made in future to enable effective control. It will be crucial that clear environmental and social standards also apply to government bonds. Although this is more challenging to implement than for corporate bonds, it is entirely possible – for example, by ensuring that the fund only purchases green, sustainable and sustainability-linked government bonds. If conventional government bonds are nevertheless included, a supplementary list with strict criteria would be necessary, specifying exactly which countries are eligible (e.g. only countries with net zero targets and credible transition plans, countries that have signed the Paris Agreement, etc.). It cannot be completely ruled out that this would free up other funds within national budgets, which could then be used for fossil fuel projects, for example. Nevertheless, this would be the minimum standard that the TFFF should adhere to and which should be regarded as a prerequisite for responsible German participation. In this context, the findings of the Climate Change Performance Index (CCPI) can also provide useful insights. Since 2005, Germanwatch, CAN International and the New Climate Institute have used the CCBI to compare the climate protection performance of 63 industrialised and emerging countries as well as the EU.

It is equally important that sustainable investment experience and credibility in dealing with environmental and social standards are among the key selection criteria when choosing fund managers. Applicant institutions should have a proven green and sustainable investment background – or at least a binding commitment to transition to such standards, supported by a concrete transition plan.

2. Greater transparency on the financing model – donors must ensure fairness

The information provided in the concept paper to date raises the following questions: Is the TFFF’s financing model viable and can the calculated profits actually be achieved? Will the promised payments actually reach the tropical forest countries? Only if this is guaranteed will countries have a real incentive to protect their forests in the long term.

The criticism that the TFFF’s profit assumptions are based on very optimistic calculations is understandable. The return expectations of the current model depend on favourable interest rate developments, stable exchange rates and low payment defaults – factors that are difficult to predict. At the same time, the TFFF is deliberately designed for the long term: the investment portfolio spans 40 years and is intended to cushion short-term market fluctuations during this period. The financing model is based on multi-level risk management, which relies, among other things, on broad diversification across asset classes and regions, a target portfolio rating at the level of solid creditworthiness (BBB) and income and liquidity buffers. These mechanisms are designed to ensure that fluctuations in interest rates or exchange rates may temporarily lead to lower returns, but that the model remains stable and sustainable in the long term.

This requires a model that is not risk-free, but financially sound and fair, and capable of withstanding short-term shocks. The TFFF must be designed to minimise and distribute risks fairly so that the financing model remains stable even in volatile phases and ensures reliable long-term payments to tropical forest countries. Only if payments flow reliably will countries be motivated to invest in forest protection at an early stage. This, in turn, requires full transparency regarding assumptions, risk parameters and planned stress tests. Brazil should disclose this information in a timely manner and further refine its risk management strategy in order to build trust among donors and tropical forest countries. This transparency should also be a key prerequisite for Germany’s financial participation.

Tropical forest countries would be the first to forego their payments, as the structure of the TFFF stipulates that, after deduction of fund administration and management costs, investors are served first and tropical countries receive their share only at the end. Therefore, another key aspect is the mix of financing instruments with which sponsor countries make their contribution. In addition to guarantees and low-interest loans, the latest version of the TFFF concept paper now also provides for paid-in equity and sponsor capital notes (hybrid capital). This expansion is to be welcomed, as it allows for different risk distributions and financial responsibilities. The more concessional the funds are, the more risks can be shifted from tropical forest countries to sponsor countries – and the more stable the payments become, thereby increasing the incentive for tropical forest countries to preserve their forests. For Germany, the following should therefore apply: its own contribution mix must ensure fairness and predictability for tropical forest countries – not maximum returns.

3. Comprehensive monitoring of forest degradation – fire alone is not enough

A key weakness in the current design of the TFFF concerns the monitoring of forest degradation. So far, fire alone is to be used as an indicator – other forms of damage, such as selective logging, are not taken into account. This means that a significant proportion of actual forest loss is likely to be overlooked. Although the current TFFF concept paper provides for a review of this rule within three years of the first payments, this is too late. Improvements in monitoring must be implemented before the first payments begin in order to ensure that only intact forests are rewarded.

The TFFF offers an opportunity to set new ecological standards in this area. In future, a multi-level indicator system should be used that takes into account criteria such as biomass loss or reduction in canopy density in addition to fires. Germany should advocate for these standards to be made binding and reviewed regularly. This is the only way to ensure that the TFFF actually promotes the protection of intact and species-rich forests – and does not inadvertently contribute to their gradual degradation.

4. Complement rather than substitute: The TFFF should not mask existing shortfalls in climate financing

A crucial factor for the credibility of the TFFF is the additionality of donor contributions. This should definitely be enshrined in the TFFF Charter – but whether this will actually happen is questionable. Funds flowing into the TFFF must not replace public climate finance that has already been committed. They must be provided in addition to existing public – primarily grant-based – international funds for climate and biodiversity protection. It is important that investments by sponsor countries in the TFFF do not displace funds from international adaptation finance in particular. Many of the most vulnerable countries, especially on the African continent, have little or no tropical rainforest cover and would therefore benefit little or not at all from the TFFF. Initial analyses suggest that the following countries in particular would benefit from the TFFF if they keep their deforestation rate below 0.5%: Brazil, the Democratic Republic of Congo and Indonesia. The possible accounting of TFFF investments towards existing financing targets such as the New Collective Quantified Goal (NCQG) could result in urgently needed funds for adaptation measures – such as protection against droughts, floods or crop failures – being reduced or redirected. In theory, these financial flows should not compete with each other: while TFFF investments generate long-term returns that flow back to sponsor countries, adaptation funds consist mainly of grants that do not have to be repaid. In practice, however, there is concern that competition or replacement may nevertheless occur.

The current concept paper 3.1 removes the explicit reference to the NCQG – an improvement on earlier drafts. Previous versions stipulated that all investments in green, blue or sustainable bonds in ODA-eligible countries could automatically be counted towards the NCQG. Nevertheless, there is still a risk in practice that individual countries could in future incorrectly declare their entire investments in the TFFF as a contribution to their climate finance commitments, thereby displacing “traditional” climate finance.

Investments in government or corporate bonds – even if they are green, blue or sustainable – should not be automatically classified as climate finance and counted towards the 1.3 trillion target in the NCQG. This would be dangerous and could artificially inflate the target – with disastrous consequences for the fight against climate change. Such financial investments may have an immediate impact on the climate, but they do not automatically guarantee this and may therefore only be counted towards the target if and to the extent that they demonstrably achieve clear mitigation or adaptation value.

It is crucial that only funds actually and demonstrably paid out to tropical forest countries may be counted towards the 300 billion target in the NCQG – and only in proportion to the respective share of a donor country in the total volume of the TFFF. For Germany, for example, this would mean that if it contributes around one per cent to the total capital of the TFFF (around 1.25 billion US dollars), it could count a maximum of one per cent of the funds paid out annually. Assuming four billion US dollars in annual payments, this would correspond to around 40 million US dollars per year.

If Germany makes a financial contribution to the TFFF, it must clearly be made under these conditions and must not be used as an excuse or compensation for the declining climate finance funds that we are currently seeing in the draft budgets for 2025 and 2026.

Conclusion: One building block among many – responsibility remains comprehensive

The TFFF could become an important pillar for global forest protection – provided it is designed to be fair, ecologically and socially credible, and financially sustainable. However, its official launch at the start of COP30 should not distract from urgently needed outcomes of the climate conference. Innovative financing instruments that also mobilise private capital are indispensable – but they cannot replace the commitment of sufficient public funds, especially for adaptation financing in the most vulnerable countries. Likewise, it remains clear that with a financial contribution to the TFFF alone, Germany’s responsibility for forest protection is far from fulfilled.. Germany must advocate for an ambitious TFFF design in its decision-making body and simultaneously support strong EU regulations, including strict deforestation-free supply chains and high forest protection standards in the EU taxonomy, the European framework for classifying environmentally sustainable investments. Only through a combination of credible financial commitments, robust standards and political commitment can the TFFF become what it promises to be: a real turning point for global forest protection.

Julia Grimm & Ute Sudmann, Germanwatch