Saving the Tropical Forest (Forever Facility): Reflections on a meeting in Oslo

When Brazil launched the Tropical Forest Forever Facility (TFFF) at COP30, it was presented as a breakthrough: a perpetual fund that could finally provide long-term, predictable payments for keeping forests standing. The promise was powerful. Instead of relying on unstable annual budgets, the TFFF would finance conservation through investment returns – a mechanism that could, in theory, support tropical forests for generations.

In the run up to COP30, we have been among the core teams analysing the TFFF’s financial promises and underlying investment strategy through a public blog and podcast series. Our findings have been cited by the Financial Times, The Wall Street Journal and Mongabay, and were independently supported by an analysis done by the UK climate finance think tank BloombergNEF. 

Throughout this work, our intention has never been to weaken the TFFF. On the contrary, we have consistently argued that permanent, results-based incentives remain one of the most promising approaches towards global forest protection. Our concern has been with the financial architecture designed to fund this vision – and whether it is robust enough to deliver it.

Having studied the details of TFFF for months, we followed closely the discussions of the recent seminar in Oslo, “COP 30 and implications for tropical forests,” organised by the Norwegian economist Arild Angelsen of the Norwegian University of Life Science (NMBU). We were particularly interested in how these questions were perceived within Norway – now the mechanism’s principal donor, with a pledge of up to USD 3 billion in junior capital. What unfolded was unusually candid, constructive, and revealing. Far from offering an uncritical endorsement of the TFFF, the speakers collectively illuminated key uncertainties that must be resolved if the mechanism is to succeed. For the first time, Norwegian officials and leading experts publicly acknowledged the contradictions, analytical gaps, and structural unknowns that still surround the TFFF.  The event exposed a striking convergence of concerns and, importantly, a clear opportunity for Norway to guide the mechanism toward a more stable, transparent, and credible design.

A revenue model without financial theory

The clearest analytical intervention came from Angelsen, who unpacked the TFFF’s investment structure with unusual directness. The mechanism relies on borrowing at roughly 5 per cent and investing in emerging-market sovereign and corporate bonds yielding around 8 per cent, and it treats the difference as a stable revenue stream for forest protection. Angelsen made explicit what many analysts have quietly acknowledged: the “3 per cent spread” is simply the risk premium that compensates investors for holding volatile, non-investment-grade assets. It is neither an arbitrage opportunity nor a predictable income source.

BloombergNEF’s recent analysis reinforced this point, stressing that BB-rated bonds are risky by definition and that their excess returns fluctuate sharply over cycles. The TFFF’s revenue model extrapolates the past 20 years of market performance without any theoretical justification. As Angelsen noted, if stable and perpetual returns could truly be generated by borrowing at 5 per cent and investing in BB-rated debt at 8 per cent, financial markets would have already taken advantage of this opportunity. The mechanism’s fundamental assumption has no anchor in established finance theory.

Another speaker, Professor Bård Harstad of Stanford University, added a political-economic warning: if early returns disappoint - a plausible outcome given the volatility of BB-rated markets – confidence among donors and forest governments may collapse, undermining the credibility of long-term forest finance at large. A fragile mechanism that underperforms in its first decade risks doing more harm than good, potentially not only harming future forest protection, but climate finance and potentially development cooperation at large.

Together, the speakers underscored a critical point: the TFFF currently rests on a revenue model that lacks financial grounding. None of the panellists, nor the TFFF Concept Note itself, can explain how stable long-term returns would be generated after accounting for volatility, losses, and operating costs.

Norway’s own investment philosophy vs.TFFF

A second theme emerged when Andreas Dahl-Jørgensen, director of the Norwegian rainforest programme, addressed comparisons with Norway’s sovereign wealth fund, otherwise known as the oil fund. He noted that the oil fund does not earn high returns from ultra-safe assets such as US government bonds – implying that higher returns require higher risk.

This remark inadvertently highlights a deeper inconsistency.

Norway’s sovereign wealth fund is governed by one of the world’s most conservative and risk-sensitive investment mandates. It diversifies across more than 9,000 global holdings, limits exposure to both higher-risk fixed yield and emerging-market investments to 5 per cent, and, crucially, does not use leverage.

The TFFF proposes doing the opposite. Its structure is based solely on leverage. Without any capital at all, it plans to borrow from sponsor countries and institutional investors and then invest the proceeds in high-yield, high-risk assets. It is hard to imagine a riskier scheme, since rather than diversifying, it will also concentrate its investments into a single asset class. 

This inversion of Norway’s long-established investment philosophy was not explained at the meeting. Yet it is a central contradiction that deserves scrutiny. Why should Norway manage its pension wealth cautiously while financing rainforest protection through a highly leveraged bet on volatile debt markets? Why would Norway take a financial gamble with USD 3 billion when failure could undermine the public’s willingness to support development and climate funding in the future?

The dilemma of a mini-TFFF

The meeting also exposed the structural problem inherent in the reduced mini-TFFF. With only USD 6.7 billion committed – far below the originally proposed USD 25 billion junior tranche – the mechanism risks becoming a fund too small to generate meaningful payments in the decisive years before 2035.

Civil society perspectives reinforced this concern. Torbjørn Gjefsen of Rainforest Foundation Norway emphasised that Indigenous Peoples and Local Communities (IPLCs) must receive predictable support now to secure land tenure, strengthen governance, and protect forests. Although he did not comment directly on the TFFF’s payout timeline, his presentation made the underlying tension clear: forest communities require urgent support during the 2020s, not after 2035.

Dahl-Jørgensen confirmed that the TFFF will not deliver the widely cited USD 4 per hectare in the near term and that the early years must be used for “capital accumulation.” But at the current micro-fund scale, such accumulation is unlikely. Early returns will be absorbed by portfolio management fees, administrative and trustee costs, monitoring, MRV, and verification, buffer-building to protect senior bondholders, volatility and potential defaults in BB-rated markets.

This raises a fundamental question: if the first decade is devoted to stabilising the fund, when do rainforest countries actually begin receiving meaningful payments?

Rather than a USD 125 billion fund by 2030, the mini-TFFF risks becoming a USD 50 billion fund closer to 2035 – a timeline completely incompatible with forest countries’ 2030 deforestation commitments.

The missing risk analysis

Finally, the event in Oslo highlighted a significant transparency gap. Dahl-Jørgensen referred to “modelling over decades” that informed Norway’s decision to commit USD 3 billion. As far as we know, none of this modelling – stress tests, volatility scenarios, expected-return distributions, downside simulations – has been made public. It is not contained in the Pareto Securities analysis, referred to in Development Today’s recent article. A superficial summary of a risk analysis was included in TFFF Concept Note 3.0, but it has been deleted from version 3.1.

For a public investment of this magnitude, such opacity is difficult to justify. Donors, forest governments, and civil society lack the information required to evaluate whether:

• the risks have been fully understood,
• the expected returns are realistic,
• the mechanism can withstand emerging market sovereign debt volatility,
• and the promised payouts can be delivered over time.

The Oslo seminar did not resolve these questions; it exposed them.

Open questions

This investment carries real opportunity cost. Norway’s entire annual ODA budget is roughly USD 5.2 billion (2024). Committing up to USD 3 billion in junior capital to a leveraged, volatile mechanism should therefore require the highest degree of financial scrutiny and transparency.

In a mini-TFFF, the early investment income – if it exists at all – is likely to be absorbed by operational costs. In the next financial downturn, the junior tranche could well be wiped out, leaving a zombie facility that can no longer deliver meaningful payments.

We are left with a narrative built on conditionalities: if we mobilise enough money, if the modelling holds, if volatility remains manageable, if defaults stay within historical ranges. And even then, the TFFF might still only deploy its USD 50 billion gradually over the next decade.

Fundamental questions remain unanswered:

1. What is the financial theory behind the TFFF’s investment approach?
2. What expected value does Norway assume for its investment at an 8 per cent coupon – and what is the opportunity cost of committing USD 3 billion in junior capital?
3. What annual cost does the Norwegian government expect the TFFF to incur in years 1, 5, and 10?
4. Why is the TFFF concentrated in a single, high-volatility asset class rather than diversifying across fixed income, equity, and real assets?

Norway now faces a choice. It can continue to support the TFFF as currently framed, a mechanism whose financial logic remains unclear and whose timeline risks missing the decisive years for forest protection. Or it can guide the TFFF toward a more conservative, transparent, and credible design. With modest, stable funding from a small group of donors – each providing roughly USD 500 million per year – the TFFF could begin delivering payments as early as 2026.

A boringly funded TFFF would work. A speculative one will not. Norway is uniquely positioned to influence which version the world will get.

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Max Matthey is a Climate Economist and Co-Initiator of the Climate Impact Auctions Think Tank.

Aidan Hollis is Professor and Head of the Department of Economics at the University of Calgary in Canada.