Malaysia Forest Fund Charts a New Course for Forest Finance and Carbon Crediting

With a national financing gap of RM1.4 billion in forest conservation and restoration as identified by a UNDP BIOFIN study in 2019, Malaysia is embarking on a bold journey to reimagine forest finance through the Malaysia Forest Fund (MFF). Established in June 2021, MFF, under the leadership of Dato’ Mohamed Shah Redza Hussein is advancing the development of sustainable financing instrument tailored to the country’s unique environmental and socio-economic landscape.

In an exclusive conversation with Carbon Wire, Suhaini Haron, Senior Director of MFF shared insights into Malaysia’s pioneering approach to sustainable forest financing, highlighting MFF’s commitment to innovation and inclusivity in the conservation space.

Backed by a mandate from the Ministry of Natural Resources and Environmental Sustainability., MFF was created to lead innovative finance initiatives, in conjunction with the National REDD Plus Strategy and National Forestry Policy as means of diversifying sources of funds to preserve Malaysia’s forest ecosystems. While more than RM700 million had been funded by both Federal and State Governments, the gap prompted the government through the Ministry of Natural Resources and Environmental Sustainability, to explore innovative mechanisms to bridge it.

Two-Pronged Strategy: FCC and FCO

MFF’s core framework is built around two financing instruments: the Forest Conservation Certificate (FCC) and Forest Carbon Offset (FCO).

The FCC is a non-market-based mechanism focused on mobilising corporate finance for forest protection through an impact-driven, third-party verified structure. It ties funding to measurable outcomes across biodiversity, social equity, and environmental integrity — aligned with the Sustainable Development Goals (SDGs) and corporate ESG reporting frameworks.

“FCC is not about carbon; it is about delivering real, verifiable impact,” says Suhaini. “It includes a governance layer that ensures third-party verification, offering corporations the highest level of assurance when reporting sustainability-linked financing.”

To make FCCs more attractive, the Malaysian government offers tax incentives — corporates can claim up to 10% tax deductions when funding forest conservation projects through FCCs.

On the other hand, FCO is Malaysia’s answer to the carbon market. Unlike traditional carbon credit systems that may not fully account for national contexts, FCO is tailored to Malaysia’s unique geography, legal frameworks, and forestry sector policies. “We’ve done comparative analysis on more than 20 international and government based standards,” Suhaini explains. “Our FCO framework is designed to reflect Malaysia’s legal and ecological specificities, ensuring that credits are both credible and context-relevant.”

From Tree Planting to Landscape-Based Solutions

While tree-planting is often seen as the go-to corporate sustainability activity, Suhaini is quick to note that forest finance must go beyond this. “We’ve profiled over 90 forest sites in more than seven states. The real needs range from boundary delineation and soil treatment to mangrove restoration using wave breakers,” she says.

MFF’s approach is thus rooted in landscape-specific solutions. By engaging with state forestry departments and local communities, the fund is creating a robust pipeline of professionally managed projects that address long-term ecosystem health, rather than one-off interventions.

One of the key challenges in attracting finance to forestry, particularly from the private sector, is the lack of mutual understanding between forest stewards and corporate financiers. Suhaini acknowledges this gap: “The two groups often operate with different priorities — forest managers focus on ecological outcomes, while corporates look for structured, measurable returns. Bridging this gap requires better alignment and mutual understanding.”

To bridge this, MFF serves as a facilitator — designing projects that marry on-the-ground needs with corporate sustainability objectives. This includes third-party audits, risk management protocols, and long-term governance structures that assure impact at scale.

“We are not looking for one-off CSR donations,” she emphasises. “We are building a scalable, risk-managed forest finance architecture.”

Championing Jurisdictional Approaches

A standout feature of MFF’s FCO programme is its jurisdictional approach. Rather than focusing solely on site-specific projects, the fund is working with four states to pilot baseline studies that will support jurisdiction-level carbon crediting.

“This allows us to engage broader communities and align benefits with subnational regulations and laws,” Suhaini says. “It also strengthens government oversight, ensuring that carbon finance benefits not only the environment but also the people living within or near forested areas.”

As Southeast Asian nations ramp up their climate commitments, Suhaini sees strong potential for regional collaboration. Malaysia is open to mutual recognition or dual certification arrangements with other ASEAN countries, including Thailand and Indonesia, to fast-track the development of crediting systems.

“Many of our forests are ecologically similar. Sharing methodologies across ASEAN would help all of us scale faster and ensure regional integrity,” she notes.

With most ASEAN countries moving towards compliance carbon markets, MFF’s emphasis on government-backed systems is expected to increase confidence among investors and buyers, especially in terms of legal clarity and long-term risk mitigation.

Beyond Carbon: Financing Standing Forests

Looking ahead, Suhaini wants to push the boundaries of what forest finance can be. While carbon offsetting remains important, she stresses the need to fund intact, standing forests that are not currently part of carbon projects.

“Brazil has introduced the Tropical Forest Forever Fund (TFFF) mechanism. We’re studying similar instruments to finance the protection of undisturbed forest areas,” she says. “It’s time to value forests not just for what they absorb, but for what they inherently are.”

With nearly two decades in fund management and technology transfer, Suhaini’s transition into sustainable forestry finance was driven by both curiosity and conviction.

“This is a new space — nobody can claim 15 years of experience here. It’s about learning fast, closing knowledge gaps, and building something that benefits not just institutions, but the people and forests of Malaysia,” she reflects.

And while she admits it may sound cliché, her goal is simple: “To grow personally while giving back to Malaysia — creating impact first, and talking about returns later.”