Creating a Multilateral Wealth Fund for a Global Public Good: Proposed Financing Strategy for a Tropical Forest Finance Facility

The Tropical Forest Finance Facility is a proposal to establish a pay-for-performance mechanism to finance reduced deforestation of tropical forests. The overarching goal of the Tropical Forest Financing Facility (TFFF) would be to slow and reverse tropical deforestation. The TFFF would support the development, environmental and global benefits that reducing deforestation and protecting tropical forests can ensure. The facility would be akin to a multilateral sovereign wealth fund whose investment returns, above the rate of return to funders on the initial investments, would be used to reward tropical forest countries for their performance in reducing, and eventually halting or reversing, deforestation. The TFFF would mobilize significant low-cost resources that can be invested in private markets to generate substantial financial returns, above the cost of funds. Performance would be measured using global satellite monitoring data against a benchmark, specified in advance by investors who are funding the offer. It would build on major technology breakthroughs in satellite monitoring for measuring results. The proposal would maximize the efficient use of public credit and not rely on overseas development assistance. This paper outlines the proposed financing strategy for the pay-for-performance financing facility. The performance payments would be distributed as part of a global offer, available to all countries with extensive tropical forests.