National forest funds can help tackle climate change

Vast potential of financing tool remains largely untapped

8 May 2015, New York - National forest funds - publicly-managed financing mechanisms intended to support sustainable forest management - hold vast potential to catalyze greater investment in forestry, including investment aimed at addressing climate change. However, their role still remains largely unrecognized, according to a new FAO policy paper.

As a number of new national and international financing mechanisms have come into existence, such as those related to climate change mitigation and adaptation, the magnitude of potential funding has increased. However, so has the complexity of accessing such resources, according to the publication, launched this week at the 11th Session of the United Nations Forum on Forests, where financing for sustainable forest management is among the most prominent issues being discussed. 

Properly designed and managed national forest funds (NFFs) can act as coordinating mechanisms to channel investment streams from multiple sources towards implementation of schemes like payments for environmental services or national programmes aimed at reducing carbon emissions from deforestation and forest degradation (REDD+), the paper says.

"With growing recognition of the critical roles played by forests in addressing global challenges such as climate change, food security and poverty alleviation, supporting sustainable forest management remains key," said Eva Muller, Director of FAO's Division of Forest Economics, Policy and Products. "Through this publication and related support for capacity building, FAO hopes to contribute to the development of national forest funds that are able to translate forestry investments into effective national action, promoting sustainability."

Making NFFs work

Despite the presence of NFFs in more than 50 countries, limited information is available on the way they work and a number of countries have yet to transform them into effective financing tools.

"One of the key requirements for such a transformation is having a strong policy and legal basis for their establishment and operation that ensures transparency and accountability. This will enable the governments to mobilize funds from both domestic and international investors and donors," said the author of the publication, Rao Matta.

Mobilizing financial resources is particularly complex when it involves harnessing international funding, particularly sources related to climate change. Doing so requires national structures capable of absorbing, re-directing and using large amounts of money efficiently, he noted.

Having the necessary policy and institutional frameworks in place facilitates better access to international funding. This is the case for Costa Rica's National Forest Fund, which was therefore able to access funding from the World Bank Forest Carbon Partnership Facility to implement an emission reductions programme.

Cross-sectoral approach

Cross-sectoral collaboration is critical for implementing schemes like PES and REDD+ and NFFs should ensure participation of stakeholders from other sectors - particularly finance, tourism, energy and infrastructure, the FAO publication also notes.

For example, the National Forest Fund of Viet Nam is working closely with the Ministry of Industry and Trade to ensure that small and medium-sized hydroelectric plants pay for the environmental services provided by upstream forests.

Carefully designed NFFs can avoid the fragmentation of efforts and overlapping of mandates and activities of various institutions, coordinate efforts and enhance financial resources by bringing them under the same organizational umbrella.

Based on practical experiences, the publication "Towards effective national forest funds" outlines the general structure of NFFs and potential measures for improving their performance. 

Photo: ©FAO/Aris Mihich
Viet Nam's National Forest Fund been able to collect payments from hydroelectric companies for environmental services provided by upstream forests.