A Malaysian federal agency has launched a non-market instrument under its REDD+ programme to channel private sector funds for supporting forest conservation projects in the country.

The Malaysia Forest Fund (MFF), a federal government agency, on Monday launched a Forest Conservation Certificate (FCC) programme to finance forest conservation practices.

FCC is the first such instrument in the fund’s pipeline to certify emissions reductions or removal activities under Malaysia’s REDD+ Financial Framework (RFF), established in 2021.

Companies will be able to use the certificates from projects, verified by independent verification bodies, to meet their Environmental, Social, and Governance (ESG) reporting requirements.

In order to encourage private sector participation, the Ministry of Finance is introducing tax incentives for those investing in FCCs.

“The government is aware of the growing concerns pertaining the integrity and transparency surrounding forest conservation projects. This has garnered a considerable amount of media attention and public scrutiny, as well as demand for accountability and transparency in all levels of the relevant processes,” said the Minister of Natural Resources and Environmental Sustainability, Nik Nazmi Nik Ahmad.

“Therefore, the FCC was designed with an emphasis on a practical process of project implementation, monitoring, reporting, and verification.”

The certificate will not generate any carbon credits, nor can it be used to support offset activities, Nik Ahmad said.

And while carbon projects are highly dependent on large tracts of land to make a viable economic return of carbon credits, FCCs can be used on a smaller sized area, with tailored activities that can be implemented on a shorter timeframe, he added.

For 2024 alone, the federal government has set aside a total of RM200 mln ($42 mln) for its so-called Ecological Fiscal Transfer (EFT) scheme, which will be channelled to all the state governments for the conservation and protection of their biodiversity and forests.

However, the minister noted that putting the burden of conserving nature squarely on the government’s shoulder “will never be sufficient, nor practical”.

Meanwhile, MFF signed a Memorandum of Understanding (MoU) with a Malaysian cooperative body ANGKASA and Layang Kaji, a sustainable forest management firm to collaborate on FCC projects.

MARKET-BASED INSTRUMENT

Forest Carbon Offset (FCO), a separate instrument being developed by the MFF, will be able to support carbon offset activities.

The Southeast Asian nation is currently conducting a feasibility study to evaluate the needs, practicality, and viability of implementing a domestic carbon crediting mechanism and evaluating the alignment of FCO mechanism with existing rules and regulations in the country.

MFF hopes to finalise the feasibility study by the end of the second quarter of 2024.

“We envision FCOs to be a domestic standard, at par with existing international standards like Verra and Gold Standard, for use to develop forest-based carbon projects,” Nik Ahmad said.

The minister added that Malaysia is also exploring the financing of carbon projects through the issuance of a biodiversity sukuk – a bond-like Islamic finance instrument – of up to $200 mln.

“I hope all these initiatives can emerge as the new catalyst for a more vibrant carbon market and its ecosystem in Malaysia.”

By Nikita Pandey – nikita@carbon-pulse.com