Current finance flows to forests.

 

Current forest financing remains insufficient. This chapter offers the most comprehensive 2023 overview of global public and private forest finance, outlines key private finance channels, and assesses potentially harmful flows to forests.

This analysis estimates that finance flows to forests were roughly US$ 84 billion in 2023 (Figure 2.17). Public finance flows (domestic and international) are the main source with 91 per cent (US$ 77 billion) of global finance flows to forests. Over 96 per cent (US$ 75 billion) is through domestic government spending, mainly channelled to the agriculture and forestry sectors. International public finance flows for forest protection, restoration or sustainable use in developing countries make up 4 per cent (US$ 2.9 billion) of total public expenditure on forests and are a comparatively small contribution compared to domestic public expenditure. Private finance flows to forests are estimated at roughly US$ 7.5 billion (9 per cent of forest finance). About 39 per cent (US$ 2.9 billion) of tracked private forest finance is channelled through certified commodity supply chains and 23 per cent (US$ 1.7 billion) through impact investing. Carbon markets, biodiversity offsets and credits, despite being smaller in volume (17 and 16 per cent of private forest finance respectively), are emerging asset classes with potential to scale finance for forests

Governments support forests through a wide range of policy instruments. These include Payments for Ecosystem Services (PES) schemes, subsidies for sustainable agriculture or forest management, reforestation and afforestation programmes and tax incentives for forest conservation activities. These instruments, if designed and implemented with gender-responsive criteria, has the potential to advance the inclusion and leadership of women, Indigenous Peoples, and local communities in forest governance and benefit-sharing. These policy tools may be embedded in both land-use and environmental budgets, blurring the boundaries between forest-specific and broader land-use finance. Approximately 41 per cent of the tracked domestic government spending on forests occurs in just two countries: China (US$ 19 billion) and the United States of America (US$ 12 billion)11 (Figure 2.2), which prioritize the agriculture and forestry sectors. China's expenditure is driven by extensive afforestation efforts, ecological restoration programmes and policies like the Grain for Green program, which aims to convert cropland back to forests. In the United States of America, forest expenditure is linked to federal and state-level wildfire management, sustainable agriculture and forestry programmes and conservation initiatives.

 

Public domestic finance flows to forests are highest in advanced economies or higher income countries, while the greatest needs for forest protection and restoration are predominantly in low and lower-middle income countries where public expenditure is relatively low (Figure 2.3). In 2023, of the total US$ 75 billion in domestic government expenditure, only US$ 12.9 billion (17 per cent) was allocated within 31 tropical forest countries with available data . This is likely due to limited fiscal capacity, competing budget priorities, insufficient political commitment to the sector and weaker institutional capacity and governance frameworks.

Despite budgetary constraints, some tropical forest countries spend significantly more on forests than they receive in international development support targeting forests. The analysis above estimates that these governments spent on forests on average 36 times what they received in international public finance flows in 2023. A 2021 FAO study of 13 sub-Saharan African countries estimated that between 2016 - 2018, governments except Burkina Faso, Mali, Malawi and Rwanda, spent on forestry an average 3.5 times more than official development assistance (ODA)received. This suggests a structural imbalance: despite fiscal constraints, most countries with high value forest ecosystems dedicate relatively more public resources than the external support they receive. This underscores the significance of domestic public finance compared with other sources of finance.

 Forest policy instruments

Forest loss is partly driven by market failure: essential ecosystem services provided by forests - climate regulation, soil protection and habitat - are not reflected in market prices, leading to overconsumption and environmental degradation. To address these failures, governments can deploy policy instruments to internalize environmental externalities in economic decision-making. Some measures, such as environmental taxes and fees, are mandatory, while others, like payments for ecosystem services (PES), are voluntary. OECD’s Policy Instruments for the Environment (PINE) database compiles information from over 90 countries on instruments including taxes, fees, tradable permits, offsets, environmentally beneficial subsidies and payments and voluntary approaches. Of the 178 active forest-related policy instruments, 62 per cent occur in Europe and North America, followed by Latin America and the Caribbean. Fifty-seven per cent of featured instruments are environmentally beneficial subsidies and payments— primarily one-off grants, particularly in Europe (Figure 2.4). For instance, Finland offers grants for forest nature management projects and for afforestation of fields and peat production areas excluded from agricultural production. In Colombia, the Forestry Incentive Certificate (CIF) provides financial support to promote direct investment in protective and productive reforestation (FINAGRO n.d.). The use of PES has increased over the past decade, with 23 active forest PES schemes, of which 10 are government-financed. Latin America and the Caribbean host most, followed by Asia and Africa. Many date to the early 2000s and are still operational, such as Costa Rica’s Payments for Environmental Services Programme. In Brazil, the Bolsa Floresta program offers conditional payments to households in selected sustainable development reserves of the Amazon if they commit to zero net deforestation. Taxes and fees account for 36 per cent of forest policy instruments. In 2022, forest-related environmental taxes generated approximately US$ 1.6 billion globally. Examples include Côte d'Ivoire’s Special Tax for Forest Preservation and Development (TSPDF) on log deliveries, aimed at financing the restoration of national forest cover to 20 per cent by 2030 as well as forest product valorisation initiatives (Forest Governance and Policy 2024). Box 2. 

Public international finance flows to forests, including Official Development Assistance (ODA), Other Official Flows (OOF) and Private Sector Instruments (PSI), are estimated at US$ 2.9 billion in 2023 (in 2024 US$).

Public international forest finance by sector.

 Looking at sectoral allocation in recipient countries, of the total US$ 2.9 billion public international forest finance, 67 per cent (US$ 1,919 million) targeted the forestry sector, with 22 per cent going to general environment protection and 5 per cent to agriculture (Figure 2.5)

Public international forest finance by recipient 

Africa was the largest recipient of public international forest funding, receiving US$ 1,044 million in 2023, about 36 per cent of total international public finance flows (Figure 2.6). Latin America and the Caribbean received roughly 26 per cent (US$ 753 million), followed by Asia at 18 per cent (US$ 513 million). Around 58 per cent (US$ 1,671 million) of public international forest finance in 2023 was allocated to tropical countries and regions. Of finance flows attributable to specific countries, the Democratic Republic of Congo, Peru and Brazil were the largest recipients (Figure 2.7), reflecting a concentration of resources in countries with extensive tropical forest cover and elevated deforestation risks.

Public international forest finance by donor.

 Bilateral donors provide 58 per cent (US$ 1,662 million) of public international forest finance, with multilateral organizations contributing 42 per cent (US$ 1,209 million) (Figure 2.8). Germany and United Kingdom are the largest bilateral donors, together providing almost half (49 per cent) of public international forest finance. Among multilateral sources, the International Development Association (IDA) provides 65 per cent of the total, followed by the International Bank for Reconstruction and Development and European Union Institutions. The Green Climate Fund (GCF) and Global Environment Facility (GEF) account for smaller shares (5 and 1 per cent respectively). However, this is based on finance reported to the OECD for 2023 and may not capture the long-term distribution of donor contributions.

Public international forest finance by flow type.

Roughly 80 per cent (US$ 2.3 billion) of public international forest finance is concessional, primarily provided through official development assistance (ODA) grants (Figure 2.9). In contrast, nonconcessional finance, i.e. finance that does not meet ODA concessionality thresholds, including other official flows and private sector instruments, accounts for only US$ 564 million.

Public international forest finance to Indigenous Peoples and local communities

Indigenous Peoples and local communities (IPs and LCs) are vital to the protection, restoration and sustainable management of forests. As proven stewards, they safeguard roughly 36 per cent of the world’s intact forest landscapes. Their proximity, deep knowledge and connection to forest ecosystems make them essential partners in global conservation efforts, including the Kunming Montreal GBF’s 30x30 goal, which aims to protect 30 per cent of land and sea by 2030 through equitably governed systems. Yet despite their proven effectiveness as forest guardians, IPs and LCs face disproportionate risks from biodiversity loss and destructive industries. Their dependence on nature for livelihoods, subsistence and health makes them vulnerable to environmental degradation and violence from extractive mining, fossil fuel and agricultural industries. In 2023, only US$ 362 million of international public forest finance was directed to IPs and LCs-related projects (Figure 2.10), with an even smaller fraction likely directly going to IPs and LCs-led initiatives. Box 3. 

Most public international IPs and LCs-related forest finance (US$ 122 million) is allocated to multi-country or cross-regional initiatives (34 per cent to ‘unspecified’ in Figure 2.11). Latin America and the Caribbean receive around 29 per cent (US$ 105 million), Africa around 22 per cent (US$ 81 million), and Asia about 14 per cent (US$ 51 million). Peru, Uganda, Brazil, and Indonesia are major recipients yet even in these countries, direct funding to IPs and LCs appears to be small.

IPs and LCs continue to advocate for direct access to finance to support self-determination and effective responses to the climate and biodiversity crisis (UNPFII 2024). Of the US$ 362 million in IPs and LCs-related forest finance, less than 6 per cent (US$ 20.1 million) referenced a collaborating Indigenous Peoples’ Organisation in the project title, description or channel name.27 This suggests that limited funding to support IPs and LCs goes to projects led by IPs and LCs.

Gender responsive forest finance. 

Women in rural communities often bear the brunt of environmental degradation due to their roles in food security, water collection, and caregiving, yet they face systemic barriers to accessing forest finance. From 2009 to 2023, women made up less than half of landowners in 42 countries (FAO n. d.). Targeted, gender responsive forest financing can advance equity, strengthen governance, and reduce the disproportionate impacts of environmental degradation on their livelihoods. As an example, in Ecuador in 2023, PROAmazonía helped launch a gender-responsive credit line with BanEcuador to support sustainable, deforestation-free agriculture among coffee, cocoa, palm, and livestock producers. The initiative removed barriers for women, such as easing loan requirements, and set a 40 per cent target for women’s participation in credit access and financial education (UN-REDD 2025). As a result, 35 per cent of loans (US$ 3.9 million) went to 228 women producers, with many from Indigenous communities. Women now lead significant forest conservation and sustainable land-use efforts, boosting both their economic empowerment and forest protection in the Ecuadorian Amazon (UNREDD 2025).

Enabling conditions for private sector investment in forests and REDD+

 

Enabling conditions, i.e. secure land tenure, clearly defined carbon rights, strong forest governance, effective law enforcement, transparent monitoring systems, Free, Prior and Informed Consent (FPIC) processes, cultural and gender inclusion, safeguards considerations, and supportive policy and regulatory frameworks, among others, are crucial for attracting and sustaining private sector investment in forests (UNREDD 2021; UNFCCC n.d). However, establishing and maintaining these conditions, also referred as REDD+ readiness, requires substantial financial investment. Funding can come from domestic forestryrelated expenditures and bilateral and multilateral international finance flows. Multilateral initiatives that have supported REDD+ readiness include the Forest Carbon Partnership Facility (FCPF), the UN Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation (UN-REDD Programme) and the Forest Investment Program (FIP) under the Climate Investment Fund. The FCPF Readiness Fund allocated US$ 470 million to 47 countries between 2007 and 2022 (FCPF n.d.). The UN-REDD Programme has provided readiness support to 25 countries since 2009 through implementation modalities such as national programmes, targeted support and technical assistance, with a cumulative budget of US$ 441 million, averaging US$ 1 million per country per year (MPTF 2025). There have been attempts to estimate costs of REDD+ readiness and establishing enabling conditions. However, costs vary greatly across countries as they are highly context specific. The Eliasch Review (2008) estimated that implementing reforms and building capacity in 40 forest countries could require up to US$ 4 billion over five years—equivalent to approximately US$ 20 million per year. Box 5.

This section provides an estimate of private forest finance based on finance flows through a) certified commodity supply chains; b) impact investing; c) carbon markets; d) biodiversity offsets and credits; e) private investment leveraged by public finance and f) philanthropy. Given data limitations, estimates are unlikely to reflect the precise scale or distribution of private forest finance and should be treated as indicative. Flows of private finance to forests are estimated at roughly US$ 7.5 billion in 2023, equivalent to 9 per cent of total forest finance. Figure 2.12 provides an overview of private forest finance channels for which there is data. About 39 per cent of private finance flows were channelled via certified commodity supply chains and 23 per cent via impact investing. 

Despite commitments to halve deforestation by 2020 and eliminate it by 2030, agri-food companies have made limited progress. Few have achieved measurable reductions in deforestation, with many failing to meet their targets or delivering only partial results. Roughly US$ 2.9 billion was invested by producers in certifying high deforestation-risk commodities to ensure production was not associated with deforestation or forest degradation in 2023 (Figure 2.13). Commodity value chains covered include forest products, palm oil, coffee, cocoa, soy and natural rubber. Beef was excluded from the analysis due to limited data on investment in deforestation-free beef production.  

Roughly 78 per cent (US$ 2.27 billion) of tracked investment in certified commodity supply chains is in forest products, with most in Europe and North America, which account for 75 per cent of certified forest area. Other high deforestation-risk commodities receive less finance, despite being produced primarily in tropical regions where 97 per cent of global deforestation occurs. Cocoa, coffee, and forest products have a relatively high proportion of certified production compared to market size (including non-certified products), while certification remains very limited in the soy and natural rubber sectors. Rainforest Alliance certified cocoa made up 46 per cent of global production, and Rainforest Alliance and 4C-certified coffee accounted for 34 per cent. However, demand has been limited: 43 per cent of Rainforest Alliance certified cocoa and 39 per cent certified coffee were sold as conventional products due to insufficient demand. The relatively small share of high deforestation risk commodity markets that is certified suggests there are still opportunities to invest in more sustainable commodity production. Targeting investment in certification of supply chains in deforestation hotspots, particularly in sectors with limited certification to date such as soy and natural rubber, could strengthen action to halt forest loss.  

However, this requires addressing barriers that limit certification uptake. Smallholders often face high transaction costs, limited access to finance and technical challenges in meeting certification requirements. Inconsistencies across standards, weak monitoring and enforcement mechanisms and weak consumer demand for certified products further constrain their effectiveness. Complementary mechanisms including national traceability systems, chain-of-custody frameworks and national sustainability labels, are emerging as country-led initiatives that can also support more comprehensive sustainability efforts.

As investments aimed at generating positive, measurable environmental and social impact alongside financial returns, impact investing has played an increasingly significant role in financing sustainable and impact forestry over the past two decades. However, forests accounted for only 1 per cent of total assets under management (AUM) in 2023, while sectors such as energy, food and agriculture accounted for 21 and 5 times more respectively. This analysis estimates US$ 1.7 billion in impact investments was deployed into forestry activities in 202333. Almost all this investment was in sustainable forestry (97 per cent), with very limited investment in forest restoration (3 per cent). The 2024 Global Impact Investing Network (GIIN), Impact Investor Survey identifies key trends in forest impact investing. Forestry attracted the smallest proportion of investors allocating AUM compared to other sectors, with few investors actively engaged. While impact AUM in forestry increased by 53 per cent between 2023 and 2024, a high proportion of investors plan to decrease allocations in future. Despite growing recognition of forests' environmental importance, significant barriers remain in scaling private impact investment in the sector. Most sustainable forestry impact investment funds are concentrated in developed markets, with most domiciled in and investing in the United States of America, Canada and Oceania. A limited number of funds deploy capital into emerging markets despite impact opportunities in forest conservation and restoration.

Carbon markets, both voluntary and compliance, are an important source of finance for forests. In 2023, finance flows from voluntary markets and compliance forestry-related crediting programmes reached US$ 1.3 billion. Of this, around US$ 942 million was generated by just four national and subnational compliance programmes, while around US$ 355 million was through the voluntary carbon market.

The voluntary carbon market (VCM) has experienced volatility in recent years. The total value of VCM transactions increased from US$ 320 million in 2019 to US$ 2.1 billion in 2021, followed by a steep decline to US$ 755 million by 2023. Despite these fluctuations however, forest-related carbon projects continue to make up a significant share of the VCM, accounting for roughly half of VCM transaction value. Credit transactions involving REDD+, Afforestation, Reforestation and Revegetation (ARR), and Improved Forest Management (IFM) made up roughly 56 per cent in 2021, 42 per cent in 2022 and 46 per cent in 2023 (Figure 2.14).

REDD+ credits are the dominant segment of forest-related carbon offsets in the VCM and are strongly associated with tropical forests countries. REDD+ credits are regarded as a mechanism for channeling private finance to tropical forest conservation. In 2019, over 86 per cent of forest carbon credits tracked by Ecosystem Marketplace (EM) (2021a) came from just eight countries, most hosting extensive tropical forests. Latin America dominates with Peru, Brazil and Guatemala accounting for more than a third of global forestry and land-use carbon transactions, primarily through REDD+. However, concerns over the integrity of REDD+ projects have led to a fall in demand and prices. Transaction volumes for forest-related credits fell from 206 million tonnes in 2021 to 36 million tonnes in 2023. To respond to concerns, demand and supply side efforts are underway to strengthen standards, improve transparency and rebuild trust. Credits issued under jurisdictional REDD+ (JREDD+) methodologies, particularly those that have received the Core Carbon Principles (CCP) label from the Integrity Council for the Voluntary Carbon Market (ICVCM) and are accepted in the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), are recognized as high integrity. MSCI Inc. estimates forest carbon finance flows using a supply-side approach with a bottom-up method to model capital expenditure of project developers to generate carbon credits. This includes feasibility, development and construction costs and project size. MSCI estimates total capital expenditure on forest-related carbon credit projects at: • US$ 3.2 billion in 2023 (REDD+: 1.0; ARR: 1.4; IFM: 0.8), • US$ 4.3 billion in 2022 (REDD+: 1.2; ARR: 1.6; IFM: 1.5), • US$ 2.8 billion in 2021 (REDD+: 0.7; ARR: 0.9; IFM: 1.2). These values are approximately 9 times (2023), 6 times (2022), and 2 times (2021) the size of forest-related transaction values reported by Ecosystem Marketplace (EM). MSCI estimates also reflect a high ratio of capital investment to credit sales - a pattern MSCI interprets as characteristic of emerging markets, where infrastructure and upfront costs are high relative to monetized output.

Compliance carbon programmes are established by governments and set mandatory limits on greenhouse gas emissions for certain industries or entire economies to help meet emission reduction targets. This analysis estimates that US$ 942 million in private finance was mobilized in 2023 through national and subnational compliance carbon programmes for forest-based activities. This estimate is based on the value of credits cancelled under the New Zealand Emission Trading Scheme (US$ 660 million), California Cap-and-Trade Program (US$ 190 million), Australian Carbon Credit Unit Scheme (US$ 15 million) and Colombia Carbon Tax (US$ 55 million). These are the largest compliance schemes that allow forest-based carbon credits- many others, such as the EU Emissions Trading System (EU ETS), only allow direct emission reductions from regulated sectors

Jurisdictional REDD+

Jurisdictional REDD+ (JREDD+) refers to large-scale forest carbon crediting programs implemented at the national or sub-national level. Operating across jurisdictions, this approach seeks to uphold integrity by applying social and environmental safeguards and aligning with broader climate targets. In 2024, JREDD+ methodologies (ART-TREES v2.0 and Jurisdictional and Nested REDD+ Framework v4.1) were endorsed by the Integrity Council for the Voluntary Carbon Market (ICVCM), signaling progress towards recognition as high-quality credits that meet the Council’s Core Carbon Principles. JREDD+ presents considerable potential to scale forest positive finance. Estimates from Environmental Defence Fund (2024) suggest that JREDD+ programs in the ART-TREES pipeline could supply up to 300 million tonnes of credits annually by 2030. Box 6. 

While analysis is dated and limited in scope, it is estimated that private forest-related investment in biodiversity offsets was roughly US$ 1.2 billion in 202347. This estimate is mainly derived using data from Bennett et al. which assessed 99 compliance-based biodiversity offset and compensation programmes across 33 countries in 2016. The forest-related value was extracted from total reported transaction value by identifying relevant programmes and applying the share of forest-related offset area by region to regional transaction values. Global and regional figures reflect the composition of the original sample and may not represent the current market

While offsets are investments intended to compensate for unavoidable biodiversity losses, biodiversity credits aim at increasing overall biodiversity levels. A biodiversity credit is a certificate representing a measurable and verifiable gain in biodiversity that is additional and lasting. Biodiversity credit markets are currently small. In 2023, Carbon Pulse reported that approximately US$ 8 million had been pledged across developed biodiversity market schemes, while BloombergNEF (2024) estimated that less than US$ 1 million in biodiversity credits had been purchased. The share associated with forests is even more limited.

Private finance mobilized by official development finance (ODF) interventions refers to financial resources from private entities (e.g. corporations, investors, banks) that are catalysed or leveraged by development co-operation providers through instruments detailed below. In the context of development finance, this is a key strategy for scaling up investments needed for forests, especially in fiscally constrained countries. In 2023, an estimated US$ 277 million of climate finance was mobilized for forests from the private sector by ODF interventions. Over three-quarters of this private finance was leveraged by multilateral organizations, with the Green Climate Fund (GCF) accounting for 78 per cent through collective investment vehicles (CIV) and the Global Environment Facility (GEF) contributing 22 per cent primarily via simple co-financing. Governments, mainly the United States of America and the Netherlands, have leveraged about 14 per cent of this private climate finance for forests, mostly through simple co-financing and syndicated loans (Figure 2.15).

Finance flows to forests mobilized through private philanthropy are estimated at US$ 103 million in 2022 based on OECD data. Africa received the largest share, with US$ 40 million (38 per cent) of philanthropic forest finance. Latin America and the Caribbean received US$ 19 million (18 per cent) and Asia received US$ 12 million (12 per cent). Around 29 per cent of reported forest finance is directed to developing countries and regions, without specific recipient countries identified in the data. Philanthropic funding can play a crucial role in strengthening enabling conditions in regions where government capacity to achieve environmental goals is limited. In Africa, most projects were linked to the agri-food sector, often focusing on sustainable forest management and regenerative practices. In Latin America and the Caribbean and Asia, projects mainly targeted general environment protection and forestry, particularly forest protection and restoration, as well as government and civil society initiatives. 38 per cent of total philanthropic forest finance targeted agriculture, 25 per cent general environmental protection, and 14 per cent was specifically allocated to the forestry sector (Figure 2.16). These figures are likely to underestimate the scale of philanthropic forest finance due to data limitations. ClimateWorks (2024) estimates that from 2019 to 2023, annual average philanthropic climate mitigation finance to forests was US$ 286 million.

While it is crucial to mobilize capital to support the protection, restoration and sustainable management of forests, it is equally important to address large- scale financial flows that drive forest degradation, deforestation and unsustainable land use. Without reducing and redirecting harmful financial flows toward sustainable practices, efforts to protect forests will be undermined. Global commodity production is a significant driver of deforestation, particularly forest products, soy, palm oil, beef, rubber, coffee, and cocoa, which contribute to deforestation in producer countries. Private investment in sectors most exposed to deforestation risk is substantial. As of November 2024, private financial institutions are providing US$ 8.9 trillion in active financing to companies with the greatest influence on deforestation.

While policy measures that support agriculture can play an important role in supporting livelihoods and food security, coupled support linked to input use and production levels is associated with the loss of 2.2 million hectares of forest per year, equivalent to 14 per cent of total and 37 per cent of agriculture-driven deforestation. In 2023, potentially environmentally harmful subsidies (EHS) in agriculture through market price support, output subsidies and unconstrained input subsidies, were roughly US$ 406 billion. Highincome countries account for the largest share of global agricultural subsidies, some of which contribute to deforestation in tropical forest countries. For example, livestock subsidies in the United States of America increase demand for soybeans as feed, contributing to deforestation in Brazil. While it is not possible to link the entirety of these subsidies to deforestation, a significant share contributes to forest loss, particularly subsidies that encourage conversion of land, such as subsidies for expanding crop production and area farmed. Recent trends show a shift toward decoupled forms of support, such as direct payments or investment in research and infrastructure, which are considered less harmful to the environment. The scale of potentially harmful finance highlights the challenge in shifting financial flows to climate and nature positive activities. Despite the urgent need for conservation, sustainable forest management and restoration, potentially harmful finance continues to undermine global efforts to halt and reverse deforestation. Reducing and redirecting harmful finance – through regulation, policy, economic and financial incentives - is essential to meet climate, biodiversity and restorationgoals.