Standing Forests, Falling Short: Is TFFF the Solution?

"The world is gearing up for climate resilience — without the money to get there." — United Nations Environment Programme, 2025 Adaptation Gap Report

Tropical forests cover approximately 45% of the world's 4.14 billion hectares of forest, yet deforestation continues at nearly 11 million hectares per year, and the world remains off-track on its 2030 environmental goals. Although this can be attributed to many causes, one crucial cause is a market failure: the ecosystem services that forests provide, such as water, biodiversity, and climate stability, have no assigned market value. This market failure makes protecting forests a less economically rational decision than agriculture or mining. 

The current global green finance system has not fixed this market failure. Forest investments need to more than triple to meet the climate Rio Convention targets. Current solutions like grants, carbon markets, REDD+, and green bonds have all tried (unsuccessfully) to close that gap. None of the existing green finance solutions compensates intact forests for the services they provide. In the forest finance landscape, there was a missing piece that valued and paid for forest services at scale. Brazil found the missing piece in November 2023, when it proposed the Tropical Forest Forever Facility (TFFF) at COP28 in Dubai, and two years later, formally launched it at COP30 in Belém, with 53 countries endorsing the mechanism.

What is TFFF? How does it work? Is it truly innovative?

The TFFF is a permanent, results-based financing mechanism that pays Tropical Forest Countries (TFCs) for keeping their forests standing. It pays governments directly an annual sum based on measurable forest protection outcomes. These payments are non-reimbursable, and countries keep full discretion over how they use them, provided they disclose the policies funded with them, and allocate a minimum percentage to indigenous and local communities (Communities). Since TFFF’s launch, it has secured more than $6.7 billion in initial commitments from sovereigns and philanthropic actors.

TFFF operates as an umbrella facility with two legally distinct entities. The first is the Tropical Forest Investment Fund (TFIF), which acts as the financial engine. The TFIF is structured with a junior tranche and a senior tranche, allowing it to leverage $25 billion in initial capital into $125 billion in capital through bond issuance. TFIF will then invest its total capital in a sustainable portfolio of long-dated fixed-income assets, and the resulting returns (after servicing senior debt and sponsor capital) will be used to fund annual payments.

The second entity is the Tropical Forest Forever Facility itself, which is the operational engine, structured as a Financial Intermediary Fund operating under the World Bank on an interim basis. The Facility oversees the verification of forest cover through satellite monitoring, enforces performance standards, and distributes the payments. These payments are determined by the TFC’s results, measured in annual hectares of standing forest, with deductions for deforestation and degradation. TFCs shall allocate 20% of payments received to Communities and retain discretion over the remainder for policies and programs that support forest conservation.

All of this sounds sophisticated on paper. But other sophisticated green finance instruments, such as carbon credits, have struggled to move the needle on deforestation, as evidenced by the forest finance gap. So, what sets the TFFF apart from the existing solutions?

First, TFFF raises money like a fund and pays for forests like an endowment. Institutional investors and sponsors provide the required fund capital, the TFIF invests it, and the returns flow directly to the TFC. Then, the payments depend on whether a portfolio is performing. This fosters a broader class of investors who have no particular interest in green investments but in the yield provided by the fund’s portfolio.

Moreover, a penalty structure makes conservation an economically rational choice for TFCs. Participating countries face financial penalties for deforestation: each hectare lost reduces payments by 100 hectares equivalent, doubling to 200 for deforestation rates at or above 0.3%. But the TFFF doesn't stop at penalizing governments; it also protects communities. The mandatory 20% allocation to Communities is a binding condition strengthened by a suspension mechanism. The payments will flow into national accounts governed by communities and disbursed by agencies elected by communities. If the TFC fails to meet the one-year transfer deadline to the communities, payments are suspended. 

Is TFFF a scalable long-term solution? 

The TFFF is innovative, but is it truly a scalable long-term solution? There are three relevant questions in determining whether TFFF will solve the forest finance gap.

The first is political. The TFFF doesn’t work within international environmental legal frameworks, which at first seems like good news, considering the U.S. withdrawal from the Paris Agreement and from climate policies, regulations, and legislation. But sovereign capital required for the junior tranche is not apolitical. If the international climate finance consensus continues to fail, how many sovereigns will commit junior capital to a thirty-year leveraged fund for forest conservation? Until now, from the initial capital required, only $6.7 billion has been raised.

The second is financial. The TFFF’s modelling has recognized a volatility risk in the TFIF investment portfolio. If early returns of the TFIF are not as expected due to such volatility, will institutional investors maintain confidence in a mechanism that has a 10-year grace period before a 30-year process of repayment? And if that confidence is affected, how will the overall forest finance credibility be impacted?

The third is legal. Once the World Bank’s interim hosting ends, who will permanently oversee the TFFF’s transparency and verification standards? Since the TFFF doesn’t work within the Paris Agreement, will the payments ever translate into Nationally Determined Contributions within countries’ climate commitments?

The TFFF is an innovative tool to bridge the financial forest gap that other green finance solutions like grants, carbon markets, and REDD+ have not. But there are still open questions that will determine whether TFFF will be truly the missing piece in the climate finance puzzle.

María Salomé Perea is an LL.M. (Corporation Law) candidate at NYU School of Law and serves as a Graduate Editor of the NYU Journal of Law & Business. Before attending NYU, Salomé worked as an Associate for 4 years in the Corporate/M&A team at Cuatrecasas, a leading law firm in Bogotá, Colombia. Before joining Cuatrecasas, she interned in the Tax team at Baker McKenzie for over a year.  Her practice is focused on cross-border M&A, private equity, finance, and general corporate matters across the infrastructure and renewable energy sectors.