With a target size of USD25 billion in sponsor first-loss capital, the TFFF will be combined with USD100 billion in senior bond issuance to create the Tropical Forest Investment Fund (TFIF), investing in fixed income securities. After paying coupons to investors, the returns from the TFIF will fund forest protection at eligible Tropical Forest Countries (TFC), dependent on the number of hectares of forest that are protected/restored.[1]
There are a several secondary and tertiary effects of interest to investors:
First, one would expect the sheer quantum of the TFIF to be conducive to spread compression in eligible investments, both in terms of secondary assets and tighter primary issuance. The exact investment criteria of the TFIF have not been confirmed; however, the concept note suggests a focus on EM debt, including local currency.
As a reference point, total foreign investments in local currency EM debt outside China amounted to around USD1trn between 2009-25 (source: IMF), suggesting the targeted size of the TFIF could be double the annual inflow. What we hear from market participants is that a new investor of this size would be considered ‘big’.
Second, forest payments in themselves could provide general credit support and improve implicit funding costs for sovereigns that receive them. The structure of payments is on a per hectare basis where evidence of protection can be verified, and therefore we consider total forest coverage as a proxy for relative size of potential payment.
Table 1 compares the debt outstanding to the total forest coverage, showing that payments are likely to be most supportive for African nations, where debt is relatively high to the forest coverage, and where forest coverage reduction rates are highest.
If forest payments are credit-relevant, this can both improve returns for existing investors and attract new capital where the government's financial position has been ameliorated.
Third, given the verification process to confirm a forest payment seems comprehensive, in time this facility will provide performance indicators for a large set of countries in terms of forest protection. And everyone loves better data, don’t they?
This could enable issuance in both use-of-proceeds as well as performance-linked debt instruments with increased credibility. Again, especially for less frequent issuers, this could provide better opportunities to solve a dearth of issuance of GSSS+ bonds.
In summary, there are a number of ways the investment arm of the TFFF is of interest to fixed income investors. As a significant new player in the space, it has the potential to tighten funding spreads. As receivers of forest payments, those eligible countries may also benefit from improved credit metrics and access to capital. And , by being monitored for forest protection metrics, there is the opportunity to access the market with additional instruments in the GSSS+ segment on the back of credible TFFF metrics.
This is a win/win/win where a virtuous circle of investment can benefit from forest payments, contribute to forest protection, and improve accountability in a highly climate-impactful nature objective.
AFII plans to analyse and monitor these potential technical flows and look to optimise portfolios for this purpose. Please sign up to our research for updates.
[1] "Over USD 5.5 billion Announced for Tropical Forest Forever Facility as 53 Countries Endorse the Historic TFFF Launch Declaration", COP30, 6 Nov 2025.
