Read more in the April 4 edition of Invert Insights.
In their latest report titled Transforming Forest Finance, the Forest Declaration Assessment, a group of 38 partners and stakeholders, including the WWF, Global Canopy, and Climate & Company, outlined five priority actions to transform the systems and institutions that finance forests. Identified through expert consultations, these actions target multilateral organizations and governments. Each action includes recommendations that include critical steps for the next 3-5 years to align the global financial system with forest and sustainable development goals by 2030.
The report identifies an opportunity to mobilize significantly higher levels of finance for forest-based climate action and sustainable development by addressing the current funding gaps and leveraging both public and private investments. The recommendation is to develop innovative financial instruments, integrate forest finance into national policies, and reevaluate the current mandate of multilateral development banks (MDBs) to expand their balance sheets and increase funding to low- and middle-income forest countries to scale policies for sustainable development, climate, and nature.
High sovereign debt burdens, especially in developing countries, are driving short-term extractive activities at the expense of sustainable development, with temporary relief measures proving insufficient and growing calls for comprehensive debt cancellation and restructuring to address the climate and biodiversity crises. The report recommends that Multilateral Development Banks (MDBs) should lead sovereign debt restructuring or cancellation efforts to enable long-term investment in human development and nature protection, with debt-for-nature swaps, simplified processes, and the recognition of natural capital in debt management frameworks to promote sustainability.
To achieve forest finance goals by 2030, governments must enhance existing financial mechanisms and create new, effective finance vehicles to support forest protection, with a focus on direct funding for high-impact activities and local actors. REDD+ has been vital for forest finance but has fallen short in delivering sufficient funds, highlighting the need for innovative solutions like the Tropical Forest Forever Facility (TFFF) and more flexible financing models to ensure that money reaches local communities, particularly Indigenous Peoples and Local Communities (IPLCs), who manage forests effectively. The report suggests REDD+ funders should increase funding to ensure payments for jurisdictional REDD+ are aligned with the costs of high-integrity programs and provide incentives for forest conservation while also supporting local communities, securing IPLCs’ land tenure and forest management rights, and considering their deforestation footprint.
Reforming agricultural subsidies that promote unsustainable practices could help transform the food system, protect small producers, and support sustainable production, contributing significantly to reversing the global biodiversity crisis and promoting forest conservation and rural development. The report suggests that countries should phase out harmful subsidies and repurpose these funds for sustainable food system transformation through a stepwise process that includes assessment, clear communication, and engaging small-scale producers while addressing political and economic challenges.
To ensure long-term resilience, nature-related financial risks must be integrated into banking regulations, with central banks and financial regulators playing a key role in shifting harmful finance flows and encouraging green investment amid political challenges to climate and biodiversity commitments. Financial institutions must integrate deforestation and nature-related risks into their governance, risk management, and decision-making frameworks, with clear expectations from regulators for proactive ecological risk mitigation and disclosure. Additionally, sustainable finance taxonomies should be expanded to define positive activities for forest objectives and exclude harmful ones, while governments and regulators push for mandatory nature transition plans and annual environmental disclosures from financial institutions to address deforestation and ecosystem conversion risks.
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💡 Integrating forest finance into national and international economic planning will be key moving forward. There is a demonstrable need for increased financial investment to protect and restore forests, highlighting the crucial role forests play in biodiversity, climate stability, and local economies. The report identifies a significant shortfall in global forest finance, with current funding levels far below what is needed to achieve sustainability goals, largely due to fragmented funding, lack of private sector engagement, and difficulties in accessing financial resources. Strong, immediate action from governments and businesses is needed to collaborate on transformative solutions that ensure that the world’s forests are managed sustainably with a focus on climate resilience.
💡 Financing must prioritize Indigenous and local communities, as they play a crucial role in forest stewardship. Ensuring equitable benefit-sharing with the local communities who rely on the forests for food, medicine, and shelter is essential for long-term success.
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