Types of finance

The Brazilian Amazon Fund is one of the largest and most experienced RBF instruments worldwide, with over a decade of operational activity, up to USD 2 billion in donation pledges, and an approved disbursement of over USD 707 million for the support of 100 projects. International donors, primarily Norway and Germany, have made payments into the Amazon Fund based on Brazil’s reduced emissions from lowered deforestation rates (“Amazon Fund,” n.d.^[1]).

The Amazon Fund holds many lessons for the implementation and operationalization of results-based finance in Brazil, but also in other countries wanting to undertake similar efforts. For example, there is the question of whether and to what extent financial transfers should be provided for past emissions reductions. While Brazil emphasizes that it deserves a reward of USD 21 billion for results achieved between 2006 and 2016, donor countries have indicated an interest in paying only for most recent results as a way to incentivize further reductions. There is also some concern that the performance of the Amazon Fund projects in generating further reductions has not been measured in a rigorous manner, so donor countries may consider making changes to current RBF mechanisms or getting involved in new forms of finance.

Overall, environmental funds are financing mechanisms that provide a variety of options for structure, operation and funding mechanisms, and assure that each fund can adapt to the context of national and local laws and conditions. On the financial side, they can provide long-term sources of finance for conservation and sustainable development, tools for leveraging additional resources, and cost-effective instruments for managing funds. On the environmental side, these funds are seen as a way to finance national environmental strategies and strengthen the capacity of local environmental organizations (van der Hoff et al. 2018^[2]).

Brazil’s first Indigenous Peoples (IP) socio-environmental funds, the Kayapó Fund and the Paiter Suruí Fund, are indigenous trust funds aimed at ensuring the long-term financing of indigenous associations and intended to help with administrative costs and activities of associations for the Kayapó and Suruí people. The funds are both instruments for the medium and long term that aim to ensure the financial sustainability of local development initiatives but have different governance structures.

The Kayapó Fund’s main objectives are the institutional and political strengthening of associations representing the Kayapó in southern Pará and northern Mato Grosso states. The fund features a sinking fund and an endowment and receives funding through voluntary and non-reimbursable donations from the Amazon Fund and Conservation International (CI), to the value of approximately USD 4.4 million. Some funds remain to be disbursed by the Amazon Fund and will only be distributed if resources are also fundraised by partner organizations, or by CI itself. If they fail, release of the remaining balance is conditional on the evaluation of social, environmental and economic indicators that demonstrate improvement in the Kayapó people’s well-being. Resources disbursed by the Amazon Fund are invested as a sinking fund and must be used by the end of the approved project; counterpart resources instead adopt an endowment strategy. This approach aligns with the REDD+ rationality of payments for results and is consistent with a public funding strategy defended by the Brazilian government in ENREDD+, the National Strategy for REDD+ (Government of Brazil 2015^[3]).

The Paiter Suruí’s objectives are to guarantee the long-term distribution of benefits from diverse sources, along with increased autonomy and empowerment, and improved activity planning and implementation among different Suruí clans. The fund has been operating as a revolving fund, which calls for a long-term fundraising strategy. In the future, the fund will operate as an endowment fund and use only revenues received as a result of interest on investments. This operating format has limitations; maintenance of a balance between the availability and demand of financial resources depends on attaining an adequate volume of fixed capital, but its application could represent an opportunity for securing long-term financing of recurrent costs and the sustainability of the fund. Initially, there were high expectations around the volume of resources that would be generated by the fund (anticipated to be around USD 15 million) but until 2015, the fund raised approximately USD 1 million. The absence of timely financial flows to meet the group’s needs, principally those dependent on productive activities, has been a cause of conflict. Because of the long time required to generate economic and social benefits for the population, dissident groups continued to extract timber, contrary to timber harvest moratoria signed by the indigenous associations.

These two case studies highlight that there is no right model to approach indigenous funds, but it is important to meet REDD+ safeguards, especially relating to Indigenous Peoples’ rights. Financing structures place requirements and demands on Indigenous Peoples, restrict their ability to properly implement the objectives of the funds, and affect their traditional practices and forms of social organization. REDD+ benefit sharing strategies in indigenous lands that deal with climate change complexities should first engage with Indigenous Peoples and other significantly affected local communities (de Barcellos et al. 2020^[4]).

In 2004, Vietnam became the first country in Asia to lay the foundations for a nationwide programme of Payment for Forest Environmental Services (PFES). The basic idea of payment for environmental services, or PES, is to create incentives for individuals and communities to protect environmental services by compensating them for any costs incurred in managing and providing those services. The Government of Vietnam first piloted the PFES scheme in two provinces: Son La and Lam Dong in 2008, and since 2010 has scaled-up the programme to the national level, becoming the first country in Southeast Asia to introduce a nationwide PES scheme.

Vietnam’s PFES is based largely on the PES premise, although the programme has some distinctive characteristics:

• Decree No. 99/2010/ND-CP defines buyers as water supply companies, hydropower plants, tourism companies and aquaculture businesses, and sellers as forest owners (organizations, households or individuals) with forests allocated or leased by the state for stable and permanent use for forestry purposes.
• Participation in the scheme is mandatory, as buyers and sellers are identified by law and must take part in the programme.
• The government sets the level of payment, and the Vietnam Forest Protection and Development Fund signs contracts with buyers that set out the amounts they must pay for ecosystem services.
• Payments are disbursed for the maintenance of existing forest cover as a proxy for ecosystem services.
• Provincial Forest Protection and Development Funds sign contracts with service buyers and collect payments for services supplied within the province.

The funds prepare payment plans, monitor and release payments to service suppliers and submit periodic reports to the Vietnam Forest Protection and Development Fund (Dung et al. 2016)