Creating a Multilateral Wealth Fund for a Global Public Good: A Proposal for a Tropical Forest Finance Facility

The Tropical Forest Finance Facility is an attempt to generate significant new finance to fund pay-for-performance incentives for tropical forest conservation. The TFFF proposal includes two key innovations: 1) the way it will raise funds, by converting low-cost sovereign credit from mission-driven investor countries and companies into cash that can be used to drive change in developing countries, through an instrument similar to a sovereign wealth fund; and 2) the way it will distribute funds, using the Cash-On-Delivery aid approach that supports country ownership and only pays for results as they are achieved and verified. The performance payments would be provided as part of a global offer, available to all countries with extensive tropical forests. The overarching goal of the Tropical Forest Finance Facility (TFFF) would be to slow and reverse tropical deforestation. The facility structure would be akin to a multilateral sovereign wealth fund whose investment returns would accrue to tropical forest countries for their performance in reducing, and eventually halting, deforestation. Performance would be measured using satellite monitoring data against a benchmark, specified in advance by investors who are funding the offer, that would be consistent across countries. This paper is one of four papers describing the Tropical Forest Finance Facility. This overarching paper, “A Proposal for a Tropical Forest Finance Facility,” presents all the components of the proposal: the financing strategy, performance measurement and allocation of investment returns, and proposed governance arrangements. Three CGD companion papers describe in greater detail each of the three components. For the reader’s ease, so as not to have to refer to the other papers, each companion paper includes a brief summary of the overall proposal so they can be read without reference to the other papers.