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Land uses that cause deforestation, fires and peatland degradation are the primary cause of greenhouse gas emissions in Indonesia. Historically, large-scale commercial land uses, such as logging, plantations for pulp and paper, and plantation crops, such as oil palm, have been responsible for the majority of emissions and degradation. Increasingly, however, smallholders have both the rights and opportunities for cultivating more land. For the Indonesian government to meet its emission reduction targets, it needs to ensure the sustainability of smallholder farming through carefully targeted policies, including regulations and incentives. The Village Fund, which is an annual national intergovernmental fiscal transfer to villages with the aim of fostering locally driven development, could also be used to support sustainable practices among smallholders. In this study, we explore how the Village Fund could be used for financing tree planting. We do this by analyzing the experience of a previous program focused on providing funding to villages that also had a component focused on supporting environmental activities between 2008 and 2012. The focus of the funding in the case study villages (in Southeast Sulawesi Province) was on small-scale community activities, including tree planting. We surveyed respondents from 38 villages and three administrative villages in seven districts. about their recollections and perceptions of the program. We also interviewed village heads about the Village Fund, and their perceptions and understanding of the fund. The results indicate that communities prefer environmentally sustainable activities that provide direct economic benefits. When communities are allowed to choose amongst a broader range of activities, including infrastructure, they are most likely to choose activities that provide the clearest benefits to the entire community. In the context of the Village Fund, communities are unlikely to prefer conservation and reforestation as the benefits to the community are either unclear or undervalued. We argue that although the Village Fund could be used for promoting conservation and reforestation, several improvements to the operation of the Fund would be needed to support and incentivize these activities.