Forests play a crucial role in combating climate change and biodiversity loss, yet the level of investment in their protection and restoration remains far below what is needed. Ahead of COP30 in Belém, financial institutions are being urged to recognize both the risks of inaction and the opportunities for investment. The United Nations Environment Programme (UNEP) has released its first State of Finance for Forests report, which reveals that annual forest funding must rise from USD 84 billion in 2023 to USD 300 billion by 2030—and to nearly USD 500 billion by 2050—to meet global environmental goals. This leaves a USD 216 billion annual financing gap that must be filled through greater private sector participation.
Currently, governments provide the vast majority of forest finance, accounting for 91% of total funding, while private investment remains limited to USD 7.5 billion in 2023. Most private capital is concentrated in low-risk regions like Europe and North America, leaving tropical forests—which drive 97% of global deforestation—underfunded. Meanwhile, harmful finance continues to flow at scale, with USD 8.9 trillion in private lending linked to companies posing the highest deforestation risk. Environmentally harmful agricultural subsidies further compound the issue, amounting to USD 406 billion in 2023. This imbalance highlights the urgency of redirecting capital toward forest-positive investments.
For financial institutions, forest finance presents both material risks and major opportunities. Forests absorb roughly one-third of fossil fuel CO₂ emissions each year, meaning deforestation directly contributes to climate risk exposure across investment portfolios. Strengthening investments in forest protection not only supports global net-zero goals but also offers significant economic potential. Reforestation and forest protection could require over USD 128 billion annually by 2030, creating opportunities for banks, investors, and insurers to finance sustainable, high-impact initiatives. Regulatory developments, including the EU Deforestation Regulation and emerging disclosure frameworks, are also making forest-related risks a compliance priority, giving early movers a competitive advantage.
New initiatives such as the Tropical Forests Forever Facility (TFFF) and jurisdictional REDD+ programs will be central discussion points at COP30. The TFFF aims to create long-term, results-based financing for tropical forest conservation, while REDD+ provides a high-integrity framework for carbon credit generation. Together, these mechanisms are expected to generate stable returns and de-risk participation for financial institutions. Despite volatility in voluntary carbon markets, forest-related projects continue to dominate, accounting for nearly half of all transactions.
Banks can act by screening portfolios for deforestation exposure, developing forest-positive financial products, and engaging in blended finance models with development partners. Investors can scale up allocations to forest impact funds and require zero-deforestation commitments from portfolio companies. Insurers have opportunities to innovate through forest-related insurance products that mitigate project and market risks. Development finance institutions can play a pivotal role in de-risking private investments and enabling direct access for Indigenous and local communities. Regulators and central banks can further accelerate the transition by embedding nature-related risks into financial supervision and expanding green finance taxonomies.
COP30, set in the heart of the Amazon, represents a defining moment for the financial sector to take collective action. The tools and mechanisms now exist to close the forest finance gap—but achieving impact will require coordinated efforts from banks, investors, insurers, and regulators alike. By shifting capital away from harmful finance and toward sustainable forest management, the global financial community can help secure a resilient, nature-positive economy that safeguards both planetary and economic stability.
