The Forest Declaration Assessment Partners calls for reform of the international financial system to halt deforestation and protect biodiversity. Credit: Amantha Perera/IPS
By Umar Manzoor Shah
SRINAGAR, Mar 20 2025 – The Forest Declaration Assessment Partners have called for urgent reforms to the international financial system to halt deforestation and protect biodiversity. It has also pitched for redirecting the public subsidies to mitigate the direct and indirect environmental risks from both public and private finance.
The report, titled Transforming Forest Finance, has termed the role of finance as critical in addressing the dual crises of climate change and biodiversity loss, while offering six priority actions to align financial flows with sustainable development goals by 2030.
“Achieving sustainable management of natural ecosystems and a green economy in harmony with nature requires a profound shift in our global financial system,” the report states. “Simply increasing funds will not halt and reverse ecosystem decline. We must also address the deeper socio-economic and political forces that drive deforestation and degradation.”
The Funding Gap and the Need for Systemic Change
The report has identified the stark reality of the funding gap for climate change, biodiversity loss, and land degradation. Despite decades of efforts, current financial mechanisms have fallen short of delivering the scale of funding needed to protect forests. For example, payments for jurisdictional REDD+ (Reducing Emissions from Deforestation and Forest Degradation) programs, a key mechanism for forest finance, are described as a “drop in the bucket” compared to what is required to halt and reverse forest loss.
“Payments for jurisdictional REDD+ are far smaller than required to halt and reverse forest loss and do not reflect the true social and environmental costs of inaction,” the report notes. Experts estimate that the cost of implementing REDD+ effectively ranges from USD 30 to 50 per metric ton of CO₂, far higher than the current payments of USD 5-10 per ton.
The report also identifies the role of environmentally harmful subsidies, which continue to drive deforestation and degradation. Governments globally spend trillions on subsidies that exacerbate ecosystem collapse, particularly in agriculture. “Redirecting public subsidies is urgently needed to mitigate the direct and indirect environmental risks from both public and private finance,” the authors argue.
Yet, the advantages of investing in forests are clear.
“There is evidence that globally, forests generate up to US$150 trillion a year in economic benefits—twice the value of the global stock markets. Maintaining healthy forests also creates jobs that support billions of livelihoods. However, the Transforming Forest Finance brief finds that financing, whether from corporations, government subsidies or multilateral development banks like the World Bank, tends to favor economic activities that “exacerbate ecosystem collapse” while failing to calculate their costs.”
Six Priority Actions for Transforming Forest Finance
The report contains six key actions to transform forest finance, targeting multilateral organizations, governments, and financial regulators. These actions are designed to create fiscal space for forest protection, scale up funding for high-impact activities, and embed forest-related risks into financial systems.
Reform Multilateral and International Public Finance
It calls for a significant overhaul of multilateral development banks (MDBs) and international public finance to increase fiscal flexibility for developing countries. MDBs collectively manage over USD 2.5 trillion in assets, giving them substantial leverage to deliver long-term, risk-tolerant finance for sustainable development.
“MDBs should expand their balance sheets and increase funding to low- and middle-income forest countries to scale policies for sustainable development, climate, and nature,” the report recommends. It also suggests reforming the International Monetary Fund’s (IMF) Special Drawing Rights (SDRs) allocation system to better support forest and sustainable development goals.
“Changing the rules for SDR allocation could help mobilize finance for forests and ecosystem restoration in the Global South,” the authors state.
Overhaul Sovereign Debt to Create Fiscal Space
High sovereign debt levels in developing countries are a major barrier to long-term forest investment. The report highlights that developing countries collectively owe an estimated USD 11 trillion, with an additional USD 3.9 trillion in debt servicing. This debt burden often forces nature-rich countries to prioritize short-term economic stability over sustainable development.
“MDBs should spearhead efforts to restructure or cancel sovereign debt so that countries can invest in human development and nature protection over the long term,” the report recommends. It also suggests recognizing natural capital as an asset in countries’ debt management frameworks, which could incentivize forest protection and increase fiscal space.
Improve and Scale-Up Funding for High-Impact Forest Activities
The report emphasizes the need to improve existing forest finance mechanisms like REDD+ and develop new, innovative funding channels. One such proposal is the Tropical Forest Forward (TFFF) initiative, which would use interest rate arbitrage to mobilize funds based on preserved forest area rather than emissions reductions.
“Industrialized country governments can play an important role in catalyzing finance in its initial phase,” the report states. It also calls for increased funding for Indigenous Peoples and local communities (IPLCs), who manage lands that sequester carbon at higher rates than other managed lands.
“Enhancing finance for tenure can help decolonize climate finance and ensure that funds reach high-impact local actors,” the authors note.
Repurpose Harmful Subsidies Driving Forest Loss
The report identifies harmful agricultural subsidies as a major driver of deforestation and calls for their repurposing to support sustainable practices. “Reforming and repurposing agricultural subsidies has the potential to transform the entire food system,” the authors state.
“Countries should identify and phase out harmful subsidies and repurpose these funds to benefit local communities and sustainable practices,” the report recommends. It also highlights the importance of transparency and public engagement in subsidy reform efforts.
Embed Forest-Related Risks into National Financial Regulatory Frameworks
As environmental shocks increasingly destabilize financial markets, the report calls for integrating nature-related financial risks into banking regulations. “Robust regulation is needed to shift harmful finance flows and encourage green investment,” the authors argue.
“Financial institutions must embed deforestation and ecosystem conversion risks into their governance, risk management, and decision-making frameworks,” the report states. It also recommends that financial regulators require institutions to publish annual environmental disclosures and adopt science-based transition plans for reducing deforestation risks.
Expand Sustainable Finance Taxonomies
The report notes the importance of sustainable finance taxonomies in shifting finance flows away from activities that harm forests. “Governments and financial regulators should work together to adopt sustainable finance taxonomies where they do not already exist, and expand existing taxonomy criteria to explicitly exclude activities harmful to forests and ecosystems,” the authors recommend.
Furthermore, it has pitched for decisive, collaborative action to transform forest finance and align financial flows with sustainable development goals. “Transforming forest finance is essential not only for protecting our natural ecosystems but also for building resilient economies that benefit everyone,” reads the report.
“Now is the time for decisive, collaborative action to safeguard our shared future and turn these ambitious proposals into lasting change.”
IPS UN Bureau Report
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