Before others, Merrill Lynch & Co. saw the forest for the trees. In 2008 the US bank agreed to purchase carbon credits, under an option agreement, in what was billed the world’s first commercially financed avoided-­deforestation project. This effort focused on preserving nearly 3,000 square miles of the Ulu Masen rain forest on the Indonesian island of Sumatra, which was losing 135 square miles annually to logging and clearing. Behind the project were nongovernmental organization Fauna & Flora International, carbon brokerage Carbon Conservation and the government of the province of Aceh.

For its contribution, which was paid over four years and helped reduce deforestation in the area, Merrill (now Bank of America Merrill Lynch) won the right to buy future carbon credits at $4 per ton of avoided emissions. Fauna & Flora says the project is expected to prevent 100 million tons of carbon emissions in the next three decades.

“We approached it from the perspective of a typical carbon market deal,” says Abyd Karmali, global head of carbon markets at BofA Merrill in London. But the deal wasn’t typical. Merrill was one of the first big financial firms to invest in projects seeking to avoid deforestation, partly so it could play a role in developing the emerging forest carbon sector.