Bright spots in the dark:
Tracking Malaysia's fiscal transfers for nature conservation
The federal government says the Ecological Fiscal Transfer (EFT) approach has spurred state governments to expand protected areas and run more conservation programmes. Yet as environmentalists are calling for more EFT funding, our latest analysis finds little transparency of most of the money disbursed, despite some state-level data from Johor and Sabah.
A co-publication by Eco-Business and Macaranga
WHAT DO turtle habitats, quail farming, artificial reefs, and the purchase of a four-wheel drive have in common?
These are all initiatives implemented at the state level, funded by allocations from the Malaysian federal government for nature conservation.
Nearly every year since 2019, Malaysia’s federal government has been transferring money to state governments under a mechanism known as the Ecological Fiscal Transfer (EFT). The funds serve to incentivise state governments to improve biodiversity conservation and establish new protected areas. Political leaders have sought to highlight this approach as a potential model for other nations to adopt to balance economic growth with environmental stewardship.
Between 2019 and 2024, Putrajaya disbursed RM517 million (US$115 million) in EFT funds. By 2025, the total allocation has reached RM800 million (US$180 million). At least 270 projects had been financed to completion by 2022, said Dr Khairul Naim Adham, the head of strategic planning in the biodiversity management unit at the Ministry of Natural Resources and Environmental Sustainability (NRES).
The federal government should give more, say conservationists. Putrajaya allocated RM250 million (US$56.4 million) for EFTs in Budget 2025 – up from RM60 million (US$13.5 million) in Budget 2019. Conservationists are calling for EFTs funds of up to RM1 billion (US$ 225.5 million) annually.
But how effective is the EFT scheme? The federal and state governments have had six years to deploy the funds. How have they used it, and what have they achieved?
How are EFT funds allocated?
The EFT scheme was introduced in Malaysia in 2019. When then-finance minister Lim Guan Eng presented the national budget, he said the federal government would allocate RM60 million (US$13.5 million) to state governments for “efforts to protect and expand existing natural forest reserves and protected areas.” The amount increased to RM70 million (US$15.8 million) in 2021. (There was no allocation in 2020.)
Every year since 2019, except for 2020, the federal government has been disbursing EFT funds to state governments. The state governments decide how to spend the funds according to the permitted scope and send yearly reports on project outcomes to Putrajaya, NRES told Eco-Business. NRES then evaluates the reports to allocate future EFT funds. These reports are not made public.
Malaysia has committed to conserving at least 30 per cent of its land and seas. The target is set in the National Biodiversity Policy 2016-2025 and the newer National Biodiversity Policy 2022-2030.
But these are federal government targets for matters beyond their powers. The country’s Federal Constitution gives state governments final authority over the management of their land and coasts.
Environmental groups such as WWF-Malaysia believe the EFT approach could help close this gap, and have advocated for more financial transfers from the federal government to state governments to better care for their natural ecosystems and partially cover the costs of doing so.
“It’s something that WWF-Malaysia has been advocating for about five to 10 years prior to it being [introduced] in 2019,” said Lakshmi Lavanya Rama Iyer, the organisation’s policy and climate change director. “We felt it was important for some federal tax money to be transferred to states, where a lot of conservation efforts are being carried out.”
Neither Budget 2019 nor Budget 2021 specified criteria for allocating or distributing the funds. RESCU, a natural resource management consultancy commented that “initially, the funds were distributed to states without much control.”
A set of criteria for EFT allocation and scope for usage was finally issued in January 2022 by the then-Ministry of Energy and Natural Resources.
Earlier this year, Natural Resources and Environmental Sustainability Minister Nik Nazmi Nik Ahmad shared that the programme’s funding model “has evolved to include performance-based criteria”, which now accounts for 50 per cent of fund distribution. He said federal authorities are prioritising disbursement of funds to states that align with national forestry laws, to further strengthen accountability.
Should EFT funds only be used for conservation? Some say no.
The federal government has said that EFT funds serve to incentivise state governments to protect nature and biodiversity. It can be used only for conservation-related activities. The scope of use is limited to conservation activities.
But this approach would make EFT less enticing for state governments that are eyeing exploitation projects with far more profits.
“States might say, ‘So what [if I don’t get EFT funds]? It’s much more lucrative to mine rare earth minerals in our forests’,” said WWF-Malaysia’s Lavanya.
Lim Teckwyn, honorary associate professor in environmental science at the University of Nottingham and managing director of RESCU, agrees.
“RM1 million is a drop in the ocean. [For example,] for a 400-hectare (ha) forest in Selangor, the state government wants RM100 million in compensation to stop developing that area,” said Lim.
Selangor has received just above RM32 million in EFT funds since 2019.
“It’s almost insulting for the federal government to say that states should sign up to the [national pledge of] 50 per cent forest and tree cover because of EFT funding, when EFT funding doesn’t help offset the opportunity costs of the land being [deforested] for development or plantations,” he said.
Lim argued that in order for EFT to be more effective and for states to see value in the scheme, they should be given more leeway over how EFT funds are used.
WWF-Malaysia's Lavanya pointed out that EFTs must be considered among the other economic priorities of state governments, such as the construction of roads and schools.
“I think the bulk of [EFT funds] should go towards conservation, but maybe a certain portion, say 25 per cent, could be used by states for these other purposes,” she said.
Outcomes of EFTs
Expansion of protected areas
NRES said that EFT funds have driven "impactful conservation projects" from 2021 to 2023, adding about 250,000 ha and 90,000 ha of protected areas on sea and land, respectively. Almost all of the gains came from three states: Johor, Sarawak, and Sabah.
*Note: While the figures for new protected areas above sum up to 340,000 ha, NRES had at times used “350,000 ha” instead.
The EFT funds also supported PERHILITAN's Biodiversity Protection and Patrolling Programme, said NRES. This programme started in 2020 and recruits Orang Asli and army veterans to combat poaching and logging in protected areas.
However, the exact outcomes of the EFT are unclear without more granular information. NRES did not respond to requests to provide more details, including a breakdown of EFT funds distributed by scope or how much funds were disbursed to key state projects.
Only scattered reports on EFT-funded projects can be found on the internet. For example, according to information on the Department of Fisheries Malaysia, in Kelantan, EFT funds contributed to an RM2.2-million (US$5 million) programme to build and deploy 70 cuboid artificial reefs in 2024. Artificial reefs are used to facilitate coral reef growth and boost marine biodiversity.
Spotlight on four states
Without further guidance from NRES, we narrowed our reporting to the states that had received the most EFT funds over the years.
From 2019 to 2024, Sabah, Sarawak, and Pahang were the top recipients of EFT funds, according to data shared by Nik Nazmi in response to a December 2024 question raised by Kluang representative Wong Shu Qi in parliament.
Latest data also showed a notable change in Johor's EFT funds. Allocations for Johor have always been one of the smallest among the states but spiked nearly four-fold in 2024 compared to 2023.
Eco-Business sought to understand how these four states have put their EFT funds to work.
Johor – an EFT outperformer
Johor received RM24.7 million (US$5.6 million) in EFT funds in 2024, a huge increase from the sum of RM6.7 million (US$1.5 million) it got in 2023. What did Johor do right?
First, Johor received the RM200,000 (US$45,106) given to any state that updates information on their protected areas.
Another RM16 million (US$3.6 million) was allocated based on "the evaluation of reports from the state" under NRES' ecological performance-based criteria. The ministry did not reveal the contents of the report.
Finally, Johor also received RM8.7 million (US$2 million) in 2024 for increasing its marine protected areas and reporting them through the Department of Fisheries Malaysia, said NRES.
Johor's State Economic Planning Division (BPEN) told Eco-Business that using the EFT allocation, the state government gazetted seven new islands and four rock formations off the coast of Mersing as part of the Sultan Iskandar Marine Park in 2021.
A map of Johor's new marine protected areas following allocations for ecological fiscal transfers (EFTs) from Malaysia's federal government. Image: Macaranga Media
A map of Johor's new marine protected areas following allocations for ecological fiscal transfers (EFTs) from Malaysia's federal government. Image: Macaranga Media
"All these marine areas have been gazetted under Section 41 of the Fisheries Act 1985," Johor's BPEN told Eco-Business.
The new marine park areas protect critically endangered hawksbill turtles, green turtles, dolphins, porpoises, and seagrass meadows for key dugong populations, according to the park's website. The islands are also home to 114 coral species and 173 coral reef fish species, according to a 2024 report by WWF-Malaysia.
Johor's BPEN said that under the scope of activities approved by NRES for the use of EFT funds disbursed from 2021 to 2023, it had provided materials for programmes to restore marine life as well as conducted conservation, restoration, and enrichment works for riverine sources of fish, shellfish, turtles and endangered species.
The agency did not disclose how much it spent on each of these activities.
How Johor used its EFT funds between 2021 and 2023
Johor received RM12 million in EFT funds in 2021-2023. It spent the money under 4 scopes allowed for EFT activities:
Preservation of existing protected areas and efforts to add new protected areas
⦁ Supplied necessary materials for the Programme for the Restoration of Marine Life
Provision and management of facilities and infrastructure
⦁ Conservation of fishing sources in Johor's rivers
⦁ Conservation programme for shellfish, turtles, and endangered species
⦁ Upgrading the Pulau Tinggi Marine Park Centre
⦁ Upgrading the Mersing Marine Park information gallery centre and the administration office
Intelligence and enforcement operations
⦁ Procurement of 4x4 land vehicles
Community engagement and capacity building
⦁ Management of public awareness areas
Sabah – supporting communities and research
Meanwhile, Sabah, which is the top recipient of EFT funds, has added about 70,000 ha of new protected areas on land from 2021 to 2023. It is unclear exactly where these are.
According to the Sabah Forestry Department's annual reports, the state introduced two new protected areas in 2023. It also reclassified 51,265 ha of land across nine locations as Totally Protected Areas (TPA) in the same year.
The Sabah Forest Enactment 1968 stipulates that changes to forest reserve classification must be published in a government gazette to be legally effective. But from 2021 to 2024, Sabah published only four gazettes under the Forest Enactment, none of which were on changes to forest reserves.
Eco-Business could not determine how Sabah used its EFT funds to increase or maintain the nearly 70,000 ha of new protected areas.
A check with the Sabah Forestry Department which manages land and forest projects found that it first received EFT funds only in October 2024. That tranche was RM6.8 million (US$1.5 million) – just 19 per cent of Sabah's RM36-million (US$8.1 million) EFT allocation that year.
The department told Eco-Business it spent the 2024 EFT funds for community development in villages bordering TPA forest reserves. These were Kampung Ranggal and Kampung Rosob Contoh in the Pitas district and Kampung Dumbun and Kampung Pulutan in the Sook district.
The funds helped villagers to develop animal feed processing, quail farming, and hydroponic vegetable cultivation. The efforts sought to improve the villagers' livelihoods and reduce their need to exploit the forests, said Frederick Kugan, Sabah's chief conservator of forests. The projects also built stronger ties between foresters and villagers, which help to protect the forest reserves, he said.
The Sabah Forestry Department has also used EFT funds to update spatial data at a protected forest reserve and establish a permanent sample plot there.
Eco-Business has not been able to get direct access to other state agencies before the time of publication of this report.
No standard definition for protected areas
The Malaysia Biodiversity Information System (MyBIS), a platform maintained by the Malaysia Biodiversity Centre under NRES, lists 521 protected areas in Malaysia.
However, while the federal government uses the sizes of protected areas to decide EFT funds distribution among states, authorities in the country have different definitions of protected areas.
For example, the Forestry Department Peninsular Malaysia considers amenity forests as protected forests. The Sabah Forestry Department, however, does not.
“The legal landscape for protected areas in Malaysia is a little bit murky because it doesn’t really exist,” said Shantini Guna Rajan, national policy lead at WWF-Malaysia.
That lack of a clear definition for protected areas risks diluting the areas being protected by EFTs in the long run, she said.
RESCU’s Lim shared a similar view. “This is a fundamental problem: if we can’t even agree on what a protected area is, then you’re going to struggle when it comes to bargaining [between the federal and state governments] on increasing the protected area,” he said.
Lim said that several years ago, the federal government published a master list of the country’s protected areas but subsequently withdrew it as some state governments disagreed with certain areas being on the list.
“Because land is a state matter, the federal government is really out of the picture,” he said.
Sarawak and Pahang – lacking data
While the government agencies in Johor and Sabah explained how they used their EFT funds – albeit only partially – the same cannot be said of Sarawak and Pahang.
Sarawak has received RM63 million (US$14.2 million) in EFT funds since 2019. But we did not find any records of how the funds have been spent. Neither the Sarawak Ministry of Urban Development and Natural Resources nor NRES replied to questions on the matter.
However, Eco-Business learned from news reports and state government data that Sarawak has been increasing the size of its protected areas. Since 2021, the state has expanded the Batang Ai National Park and the Fairy Cave Nature Reserve, and established the Burung Sarang National Park and the Bajoh-Ujong Murod Protected Forest. These added 20,230 ha of new protected areas.
The state proposes to gazette an additional 814,437 ha as permanent forest estates. However, permanent forest estates can be logged and are not necessarily protected areas.
As for Pahang, which received RM56.5 million by 2024, the state’s financial office did not respond to queries on how it used the EFT funds.
In a press release in 2022, NRES announced that Pahang had spent RM4 million to improve the management of Tasik Chini, Malaysia's first UNESCO Biosphere Reserve. But the Pahang Forestry Department did not respond to our requests for more information.
What can RM1 million (US$225,200) in conservation finance pay for?
Reef Check Malaysia
⦁ Support community marine conservation groups in seven locations
⦁ Mobilise and train 140 community “citizen scientists”
⦁ Conduct 136 coral reef surveys
⦁ Rescue 17,000 coral fragments and attach to rehabilitation sites
⦁ Remove 25 ghost nets weighing over 4,000 kg
⦁ Run 67 underwater clean-ups to remove 2,000 kg of trash
⦁ Install 50 mooring buoys
⦁ Complete 115 school education programmes
Tropical Rainforest Conservation & Research Centre
A project that:
⦁ hires 8-10 full time staff, including project manager and site supervisor
⦁ hires 5 full time indigenous staff
⦁ plants, monitors, and maintains 6000-8000 trees over a year
⦁ purchases 400kg of seeds from the community
⦁ runs 2-3 seed collection expeditions to collect 4000-9000 seeds total
⦁ maintains existing 30,000 - 50,000 trees in our nursery
A landscape-level project that:
⦁ hires 7 officers
⦁ covers up to 3 thematic areas, e.g., community-based ecosystem restoration, agroecology, alternative livelihoods, policy & advocacy
⦁ collaborates with 5 communities
⦁ gives micro-grants to the communities
⦁ runs workshops on capacity building
Data gaps and confusion
We had set out to check the effectiveness of EFT funds in conserving nature in Malaysia. Official data painted bright spots, especially the addition of 340,000 ha of protected areas. However, verifying the official narrative or tracking the outcomes of EFT-funded projects has been difficult. For example, the legal documents necessary to confirm the new protected areas in Sabah and Sarawak were not found.
We could only demonstrate how state governments used RM25 million, or just 4.8 per cent of the total RM517 million disbursed from 2019 to 2024.
Without further information from NRES and state government authorities, Eco-Business could not determine the extent of the EFT's effectiveness beyond increasing the size of protected areas in several states. None of the 10 environmental consultants and conservationists we spoke to have an answer.
Even state governments themselves have been confused over the allocations. A June 2024 report by the Institute of Strategic and International Studies Malaysia, a think tank, stated that "a pervasive lack of clarity on the eligibility, selection criteria, disbursement procedures and intended usage of the funds persists in most states."
"Perak, for example, allegedly did not receive any funds at the time of writing. Conversely, Sabah reportedly found RM20 million in its coffers without prior notification, creating confusion about the purpose of these funds," the report stated.
Calls for more transparency and accountability
When asked if the increasing EFT allocations by the federal government have significantly motivated state governments to conserve nature, environmental lawyer Preetha Sankar said that accurate data is needed to demonstrate that has been the case.
Preetha was a legal consultant with the United Nations Development Programme in 2018 when the EFTs were drafted for inclusion in the 12th Malaysia Plan.
"The addition of protected areas would indicate that the incentive has led to a quantitative trajectory, but as for natural resource management effectiveness, I'm not certain if the information is accessible," she told Eco-Business.
Preetha also pointed out that it is unclear if EFT funds have persuaded state governments to conserve nature instead of exploiting their natural resources.
"I think the jury is still out on that. We need honest discourse on the matter," said Preetha.
RESCU's report said that the EFT's annual reporting requirements currently allow the federal government to maintain a national-level database of protected areas. "Such a database would provide an unprecedented opportunity to monitor the states' progress towards the 20 per cent protection target," it said, referencing the proposed target of conserving 20 per cent terrestrial areas and inland waters under the National Biodiversity Plan.
Making this data available would "increase the accountability of decision-makers and allow civil society to assist in monitoring encroachment and verifying reporting."
Preetha shared a similar view. "If we are committed to good governance, then surely more transparency in EFT at all levels would be ideal," she said. This ranges from the Ministry of Finance explaining what factors or formulas it uses to decide on the total EFT allocation each year, to getting information at the sub-national level about what agencies and projects have received EFT funds.
"The list of projects fully or partly funded by EFT would be beneficial," she said.
This is a special report co-published by Eco-Business and Macaranga. The report was developed and written by Samantha Ho, with editing support from Ng Wai Mun and Macaranga's YH Law.
This series was also produced with a grant from the Youth Environment Living Labs (YELL), administered by Justice for Wildlife Malaysia (JWM). The contents of this story do not necessarily reflect the views of YELL, JWM, and their collaborators.
All photos are from Unsplash. Image credits (in order): Gavin Tang; Polina Koroleva; Job Savelsberg; Louis Gan; Ambrose Chua; Ryan 'O' Niel; Rob Hampson; James Lo; Joshua Stitt
Eco-Business is dedicated to reporting on Asia's most important sustainable development issues. We believe in the power of independent journalism and strive to expand the breadth and depth of our coverage with special reports like this. If you like the story and would like to show your support, do consider signing up for our paid subscription.
References/ Further reading
Afandi, Ahmad, et al. 2024. Shaping a Nature-Positive Economy in Malaysia. Institute of Strategic & International Studies (ISIS) Malaysia.
BIOFIN, UNDP. 2021. Ecological Fiscal Transfers: A Win-Win Solution for People & Planet.
Busch, Jonah, et al. 2021. A Global Review of Ecological Fiscal Transfers. Nature Sustainability 4: 756–765.
Lim, Teckwyn. 2023. Ensuring Social Safeguards for Malaysia’s Ecological Fiscal Transfer Programme.
Preetha Shankar. 2019. Ecological Fiscal Transfers (EFT); Opportunities for Environmental Grant making in Malaysia.
What it took to produce this story
As part of a collaboration with Malaysia journalism portal Macaranga, Eco-Business regional correspondent Samantha Ho worked on the special report across four months. To understand the mechanism of EFT and how the funds were used, she spoke with the Ministry of Natural Resources and Environmental Sustainability (NRES), Minister Nik Nazmi Nik Ahmad, state agencies in Sabah, Sarawak, Johor, and Pahang. She also spoke with five experts in conservation or environmental law.
Ho wanted to report on actual case studies that demonstrate how EFT funds were used. She had asked for such examples from NRES and the state authorities of Johor and Pahang, but did not get any answer. She also asked seven major conservation groups in Peninsular Malaysia for their experience with EFT funds – none of them had received any.
Documents and social media reporting were crucial for this story. Some of the sources Samantha examined include:
- Hansard for the Lower House of Parliament, Malaysia (oral and written replies)
- Budget speeches from 2019 to 2025
- Federal policy documents including the 12th Malaysia Plan and National Biodiversity Policies
- Federal and state government media statements and publications referencing EFTs
- Federal and state government gazettes, published on websites including the Attorney General’s Chambers of Malaysia
- Third-party reports shared with us by environmental consultants
- News articles
- Social media platforms, including Facebook, X and Instagram
- Perplexity AI’s deep research tool
A second part of the report that looks at ways to improve Malaysia's ecological fiscal transfers can be accessed here.
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