Forests have been undervalued for too long but Lisett Luik of Arbonics is fixing that

Lisett Luik is co-founder of Arbonics, an Estonian company that believes forests have been undervalued for far too long and is seeking to rememdy that.

In this episode we talked about:

🌳 How Arbonics is making forests a climate asset rather than just a source of timber 
🕵️ The detective work involved in ensuring carbon offsetting projects are the real deal
🌍 Lisett's journey into climate tech entrepreneurship and her advice for others looking to make the switch
🇪🇪 The entrepreneurial culture in Estonia, and the influence of long, dark winters 
👅 Her translation of Keith Richards' autobiography into Estonian

#climatetech #carbonoffsetting #carboncredits #forests

Promo partner for this episode is Grizzle, helping B2B ClimateTech companies generate demand and customers through high-quality content, social media, and SEO services. Podcast listeners can book a free consultation here.

Transcript

Ryan Grant Little: 0:06

Welcome to another Climate Tech Podcast interviews with the people trying to save us from ourselves. Lisett Luik is co-founder of Arbonics, a company that helps forest owners monetize the carbon credits that they can produce. Hot off of raising a 5.5 million euro round, they're garnering lots of interest from landowners and buyers of high quality carbon credits alike. I reached Lizette in Tallinn, E estonia. I'm Ryan Grant. Little Thanks for being here, Lisett. Welcome to the podcast.

Lisett Luik: 0:35

Great to be here. Thanks for having me.

Ryan Grant Little: 0:37

You are the co-founder of Arbonics, which matches landowners of forests with companies that are looking to offset carbon. I checked out your website and on it you say that forests have been undervalued for too long. I wonder what do you mean by that?

Lisett Luik: 0:58

So I think the way we think about forests is they really provide a range of different services for us as humans. So you know, they provide us with timber that we can use to build things, they provide us with carbon storage, they shelter animals and birds, et cetera. But historically, only really the timber part has been paid for. So everything else that you get from forests even just a nice environment to walk in or pick mushrooms in doesn't really have a monetary value, and what that sometimes means is that the incentives can get mixed up. So for a landowner they want to maximize their income that really just means they have to cut down trees because it's the only way they can.

Ryan Grant Little: 1:30

Historically, Right, and I think so. Everybody knows also that trees are a great way to capture carbon, but I think you know beyond that once we scratch the surface. I think probably it's worth a little refresher on that and also to understand kind of what that looks like in numbers. Can you kind of paint a picture of what role forests play in carbon capture?

Lisett Luik: 1:49

Yeah, absolutely. And so, going top down, I always like to set the scene by just putting it in context. So we emit every year as a planet roughly 50 gigatons, that's 50 billion tons of CO2. And at the same time we're removing two gigatons. And these two gigatons, despite our best efforts, with all kinds of cool technologies, 99.98% of that is done by nature. So we're talking forests, also soils, oceans, etc. But forests in particular take the bulk of it. So it's about 70% of those two gigatons removed every year.

Lisett Luik: 2:27

And when you look at an individual tree, it really varies a lot based on your tree species and where they're growing and how fast, et cetera. But you could be looking on a single hectare of land which may have something like 500 to 800 trees. When it's mature, you could be looking at around 400 tons of carbon stored over the lifetime of those trees. So that is quite a significant amount and a lot of this work the trees just do for us anyway. But we really think there are ways to optimize it and increase it and our ultimate goal is to increase that two gigaton removal that we do annually to 10 gigatons, because I think that would set us on the track to hitting our climate goals being more likely to hit our climate goals.

Ryan Grant Little: 3:11

This sort of feels like a forest Tinder question, but what are you looking for in a forest? So I would imagine that not all forests are created equally in terms of carbon sequestration. What forests perform the best? What kind of forests landowners are you talking to and do you prefer?

Lisett Luik: 3:28

So when we talk about a forest, we're really talking about a full ecosystem. It's not just a collection of trees. We're also talking about understory plants, what's going on in the soil, who else lives there, etc. And the forests that do the most for the planet tend to be the most biodiverse ones. So what that means is multiple species of trees, different ages of them, but also different species in the understories, different soil organisms going on. So you really want the forest to be quite diverse, because it makes it both store more carbon overall, but also makes it more resilient to things like fires and pests and wind damage etc. So even if you say, have a pest, go through your diverse forest, it may take out a particular tree species, but the others will still thrive and will fill the gap. So yeah, generally we look for forests to have as much diversity as possible.

Ryan Grant Little: 4:24

Yeah, generally we look for forests to have as much diversity as possible. Okay, so this is contrary to kind of the planned forests that we see across Europe from the past decades, where it feels much more like a kind of monoculture.

Lisett Luik: 4:33

Yes, that's true, and I would say also, some of those planted forests can actually become quite biodiverse over time and you do have forest types. Pine is a good example. Pine doesn't really like other types of trees growing next to it, so you see a lot of what you might call a monocultural pine forest, but when you really dig into it there's actually a lot of other species going on in the understory. You might have blueberries, you might have different types of mosses, etc. So I would really differentiate between you know, even planted forests, if they're done in a nature, similar to nature way, can be really biodiverse. What you really want to avoid is those big plantation types. When you bring in a non-native species, such as often eucalyptus, you use some sort of chemicals to kill all the other plants to try, and so it just looks like a bunch of trees in a row with grass underneath them. It looks more like an orchard. That's not really a forest, it's not as strong. So you want to avoid that.

Ryan Grant Little: 5:30

Okay, yeah, I was imagining these pine forests. That's kind of what I have in mind, but my knowledge or experience with forests is generally just looking out of a train window while drinking a latte macchiato. I don't spend a lot of time in them, except maybe walking my dog. I should say I want to ask you a little bit more about the platform itself and the product, but I would also really like to hear about the landowners, so the people or companies or I don't know governments that own these forests, and when you talk to them and say, you know, I want to pay you for having these trees, is this something new for them? Is this kind of a new concept? Is this something that they're used to? Now? I think back to where my parents lived in rural Canada and they had 50 acres of forest and they had some kind of tax relief for preserving it, but they definitely didn't have a startup coming to them and offering to pay for, yeah, that forest staying intact.

Lisett Luik: 6:24

One thing I find really interesting is I think landowners are the first ones particularly forest owners are the first ones who know a lot about all the different benefits forests bring. So they think of it very holistically and they're often quite close to nature. They spend a lot of their time there, so they've always known that forests are more than just a collection of timber upright still. But I do think they feel that historically that hasn't really been compensated for. So they often try and keep things like more interesting trees or some that are good for birds to nest in, etc. But they do it at the expense of their actual income.

Lisett Luik: 7:02

And there are programs across Europe. There are different things around protecting particularly interesting biodiverse habitats, for example. The payments tend to be relatively low. It varies massively country by country, but they tend to be quite low and the restrictions are heavy. And so I think a lot of landowners do feel like they are expected to maintain something that gives a great deal of societal value in exchange for nothing. And that is a difficult deal because at the end of the day they're business owners. They have children to educate, houses to renovate, they need to put food on the table, and I think it's quite harsh of us to expect them to just do the thing that we consider the right thing for no money at all. So when we approach them, they really like the idea that they might get a benefit from doing something that they would rather do anyway. They like the nature first approach generally because they tend to be, as I said, very close to nature themselves.

Ryan Grant Little: 8:00

Okay, so they've been beating the drum for decades or centuries that there's value here and we just said so. This goes back to your original kind of statement on the website forests have been undervalued for too long. Can you talk a little bit about? So what does the platform? What is the product? Maybe just kind of you know the use case, who it's for, how people use it. Is it like? I presume it's a digital platform?

Lisett Luik: 8:22

So the core Arbonics product today is we have two work streams. One is what we call afforestation, so that's planting new forests. That's taking previously underutilized land, such as low value farmland, and then planting forests on that, and in exchange for that, the landowners will get carbon credits. The second side, which is still in development but we're hoping to launch by the end of the year, is actually about changing the way you manage an existing forest. We're calling that impact forestry and it involves things like avoiding clear-cutting and instead doing selective harvesting, which maintains the forest as a biome but at the same time, still allows for timber to be taken out. And at its core.

Lisett Luik: 9:07

The way it works is landowners come to us.

Lisett Luik: 9:10

We use our data platform to very quickly analyze, based on their land ID in the case of afforestation, whether or not this land might be suitable for planting.

Lisett Luik: 9:19

We take into account legal regulations, whether there's any valuable habitats on it, whether it's valuable farmland, but also things like soil, what would actually grow on it and how much carbon it can store, and then we give them a report that says okay, so on your land.

Lisett Luik: 9:34

Here we see that there's a good opportunity for a combination spruce and birch forest on this part, and then this part is actually organic soil and you shouldn't be planting on it, so you should leave that be. And then we also go ahead and tell them if you were to follow this planting plan that we give you, this is how much carbon it can store and this is how much you can earn. And then how we make money is we take a cut of the carbon credits generated, which means our incentives are aligned with the landowners. If they don't get any credits, we don't get paid. So it's in our interest to make sure that we don't, for example, accept any landowners who are actually not suitable for carbon credits and we don't accept any land where you might have issues later. So we try and do all of that analysis upfront.

Ryan Grant Little: 10:19

Okay, so it's not about just taking existing forests kind of as is or maybe it is also like that but you're actually giving them a kind of recipe for how to maximize the carbon sequestration potential of that land.

Lisett Luik: 10:32

Absolutely. The issue with taking existing forests and just paying landowners is something called additionality, which comes up a lot in climate conversations, which is what's the difference from status quo? In what way have we actually made things better and stored more carbon? So it's very hard to solve that. So that's why I'm talking about for existing forests as well. We're talking about management plan changes, not just maintaining it, as is. What's challenging about this approach more broadly is that this additionality concept. It's absolutely valuable, but it sort of tends to punish the ones who have already been doing great things, and that, frankly, is something we haven't figured out yet. I'm not even sure anyone has figured that out. But long term, I think biodiversity, and potentially biodiversity credits or biodiversity compensation, might be a way in which we can actually benefit those who have already been doing the right thing as well, because there it's less about additionality and more about you know what animals birds, bugs, et cetera are you supporting and how important are they to the ecosystem?

Ryan Grant Little: 11:34

I mean it's interesting because the question of additionality it kind of depends what the baseline is right. So if the baseline is as it is and it could be a very well-managed forest versus the baseline could be, you know, we're going to clear, cut it and it's only because of you that we don't do this and the additionality is quite substantial. I'm reminded a couple of decades ago when there were massive incentives for shutting down refrigerant plants that were using Freon, I think it was, and the incentive then what happened is people were setting them up just to shut them down. And so, you know, these kinds of things get I mean you get sort of bad actors who can game the system, and, as always, it's the better actors, who are doing the right thing all the time, who generally have a hard time getting paid for it.

Lisett Luik: 12:20

Absolutely, and to avoid those types of issues, like the free-earn credits out of China in particular. We use a lot of data, so we look back historically, we look at old order photos to see what was on the land, so we can, for example, establish that the landowner hasn't in fact had an existing forest cut it down and is now asking for cover credits to plant a new forest. That would be a prime example of something that's not additional and we take big pains to avoid it. Interesting, yeah, so a prime example of something that's not additional and we take big pains to avoid it.

Ryan Grant Little: 12:48

Interesting, yeah, so a lot of detective work, basically that you have to do as well as part of this. You mentioned some of the kind of EU incentives for this. You just touched on it and I wonder to what extent this is all still voluntary or if there are kind of mandates coming down the pike. And somewhere in my mind I have the letter CRCF as being related to this, but I don't know how.

Lisett Luik: 13:10

Yes, absolutely.

Lisett Luik: 13:11

So we are very much still talking about the voluntary carbon market that we, as Arbonics, operate in, but what's very exciting is the voluntary carbon market, which has been the wild wild west for a long time, is starting to get more regulated, and I think you don't probably often hear startups being like, yay, regulation.

Lisett Luik: 13:29

But in this space we honestly do think that's really valuable, because what it will help is get rid of some of those bad actors and low quality projects and make sure that the high standards are equally applied to everyone. And the EU CRCF, which stands for the Carbon Removal Certification Framework great, memorable name is actually a good step in the right direction. So the EU Commission is putting in rules about what counts as carbon removal and what sort of quality standards carbon removal projects need to live up to, and they're including afforestation, so planting new forests as one of those, and we really welcome that and see that as a great, great news because, again, it will. Some of the rules are, for example, don't plant invasive species, don't use chemicals, et cetera, avoiding those issues we touched on earlier around real monoculture plantations, et cetera.

Ryan Grant Little: 14:24

And presumably it also makes. It gives a bit of confidence for the buyers of these credits to know that there's kind of a you know a set standard on this. Who are the buyers? Who's on the other side of the ledger?

Lisett Luik: 14:35

I'd say there's different groups of buyers or different sort of personas, archetypes. The most advanced are companies who have their own quite strong climate goals, usually SBTI aligned. So that's Science Back Targets, initiative aligned, which means they are first focused on reducing emissions and then only as a secondary step looking to offset. So they're not just buying indulgences. And these companies tend to have strong in-house teams. A good example is Microsoft.

Lisett Luik: 15:03

Microsoft has been very active in this space. They're very active and going into nature-based credits recently as well. So they have an in-house team that actually does due diligence on each individual project. Because today there aren't yet those regulations but hopefully, with something like the EEOC RCF coming, more companies, even smaller ones that don't have an in-house team, can access that. So, yeah, that's one group of buyers is very aware with very strong goals.

Lisett Luik: 15:29

You also obviously have big buyers such as energy companies or airline companies, but candidly, they don't tend to buy the sort of credits that we create, because they buy what is cheapest, and what is cheapest tends to not be high quality, nature-based carbon removal. What is cheapest tends to be energy credits for sort of hydropower in india or something like this, where we're talking one or two dollars per ton and that's the buyer group that we don't really talk too much because, again, their needs are very different. We very much focus on the sort of Microsofts of the world who know that they're going out there to buy high quality carbon removal and then hold everything they buy to a very high standard.

Ryan Grant Little: 16:12

And tech companies like I mean Microsoft in particular are facing challenges now of massively increased emissions because of AI. So I've seen that this double-digit percentage increases since integrating AI, so this is very much a moving target, from what I understand.

Lisett Luik: 16:28

Absolutely. Microsoft just published their ESG report a couple of weeks ago and they're up 30% from their baseline year of emissions. But at the same time, they're being very clear that they're not walking away from their ultimate land zero goals. But they have to step up their activities to both reduce emissions look at more greener energy sources for AI but also do these compensatory activities, whether it's supporting nature, supporting technology-based carbon capture, etc.

Ryan Grant Little: 16:57

I want to switch gears a little bit and talk about you yourself as an entrepreneur, because you've had a very varied background and you've worked around the world from San Francisco to London. I think my number one favorite thing about your career and my research is that you translated the Rolling Stones' Keith Richards autobiography into Estonian, which is like it's just. I'm a big Rolling Stones fan also, so I mean, yeah, that's super cool. But I wonder if you want to just go as far back as you want and kind of bring us up to maybe the moment that you decided to become a cleantech founder. How did you land there?

Lisett Luik: 17:35

Absolutely so I can't pretend that I've always had this vision.

Lisett Luik: 17:38

You know a child and I've been working towards it single-mindedly. I think my career, like for many people, starts to make a lot of sense in real view, but wasn't necessarily planned that way. I was still an undergrad in London at LSE, and the setup I stumbled into was then called TransferWise, which is a money transfer platform, now better known as Wise, and they were still in the very, very early days. It was a beta launch and I joined the team as an intern when there were about 12 people in London Wow, and that really gave me the bug for being part of something really early stage, because I saw they were doing amazing things. I was really excited by the energy, excited by how much things were changing, how much they were building day in, day out. So that was the start of my interest in startups and I went on to work in quite a few other ones. I also went through a period of burnout and I went to recover in corporate America as one does Sounds very relaxing or in corporate America as one does Sounds very relaxing.

Lisett Luik: 18:40

It was surprisingly relaxing compared to startup life. But yeah, I went to work for American Express and Strategy, which was actually lovely and I learned a lot, but obviously a very different working environment with 50,000 employees. So, as much as I loved it, I knew I wanted to get back to being more hands-on and right around the same time, I actually ended up going to get back to being more hands-on and right around the same time, I actually ended up going to the US to do an MBA with a plan of maybe joining an early stage team. But I was also toying around with starting a company of my own, but I felt like I hadn't really hit on the right idea. I had an idea it was more of B2B analytics, I built a prototype for it, et cetera but ultimately realized that it wasn't exciting enough for me to dedicate the next seven to 10 years of my life on that. So I was thinking, okay, I still have to keep searching.

Lisett Luik: 19:26

And meanwhile I moved back to Europe, went into an investment role with an investment firm started by David Hindekus, who was one of the wise co-founders, so someone I knew from back then and that's where I met my now co-founder and that's also where I got into forests because we were actually investing in forests.

Lisett Luik: 19:46

We were on the landowner side and we very quickly realized that, well, we had this big hypothesis around forests being more of a climate asset than a pure timber asset, along the lines of what we've talked about already. There was, on, really no one out in the market who could help us execute on that at the time and we really we spent six months searching and we really couldn't find anyone, which was how we ultimately concluded well, you can't, if you don't find a solution to your problem, you have to build it yourself. So that was my path to becoming a cleantech entrepreneur, and I'm not sure, as I said, it wasn't fully intentional. It was very much trying to solve a problem that we ourselves had, and then we realized that other landowners were in the same boat. But yeah, but it's been an exciting journey and I'm very glad I ended up where I am now.

Ryan Grant Little: 20:34

Please pass on my gratitude to the TransferWise founder, because I'm a very heavy user of it and I think I became a customer in the first month that it was available something like 12 years ago and so I've been using it since. As someone who is pretty global and who's lived abroad for the last 14 years and works in many currencies, it's been a real lifesaver and I've brought many people into that tent as well.

Lisett Luik: 21:01

I will pass that on. I'm exactly with you. The reason I ended up going there as an intern was because I was a beta user and I absolutely loved the product.

Ryan Grant Little: 21:09

Yeah, very cool, very cool. You mentioned your co-founder, christian. So I was actually in Estonia a couple of weeks ago and met him, and it was the first time I've been in Estonia a couple of weeks ago and met him, and it was the first time I've been in Estonia since 2016. Estonia is a country of 1.35 million people and yet has lots of unicorns, from Skype to WISE to Pipedrive and a really entrepreneurial mindset. And my kind of working theory was that, like, just as Iceland has all these bands and writers I think the most like bands and writers per capita and that you kind of do the same thing with startups and I'm wondering is this like, is this just how you get through a very dark winter? What's the deal?

Lisett Luik: 21:49

I think that theory makes a lot of sense. Yes, I also think there's probably an element. There's actually a great quote when I first moved back to Estonia with my husband, who's British, and he was speaking to an Estonian entrepreneur who's been building different businesses for 30 years and he asked the Estonian entrepreneur why did you build your first business? And he said what do you mean? Why I didn't have a choice. In the fall of the Soviet Union, if you wanted a job, you had to build yourself a company to work for. It's not like you could go and work for an investment bank or a consulting firm. That just wasn't an option. So I do think there's also an element of Estonians have to just adapt to. There wasn't much else to do. We don't have any natural resources, we don't really have any natural wealth, so the only thing we have is people who are willing to work hard and study hard and get smarter on topics, and we. But the winters definitely help as well, because there really isn't much else to do when it's dark all the time.

Ryan Grant Little: 22:47

Has your husband learned Estonian?

Lisett Luik: 22:49

He is learning. He's actually getting quite good.

Ryan Grant Little: 22:52

Wow, okay, it's a very difficult language though. It's, I think, one of the hardest languages to learn, unless you're, you know, born to an Estonian family and yeah, it sounds really cool but very hard to learn.

Lisett Luik: 23:08

Fun fact Tolkien modeled the Elvish language from Lord of the Rings on Estonian and Finnish. So yes, very difficult, quite strange, quite fairytale sounding yeah.

Ryan Grant Little: 23:16

A lot of our listeners are career switchers, so people who want to get into climate tech but are working in other industries, and I wonder you know, as someone who's worked in a variety of different areas and then became a climate tech founder, do you have any advice for them?

Lisett Luik: 23:29

I've said before, and I think my main advice is it's not really that different from any other sector in that the best thing you can do is have a really spiky skill set in something and it doesn't have to be necessarily climate or sustainability, necessarily climate or sustainability. You know, you can be a really good marketer or a very good financial analyst or a very good product manager or an engineer and they will absolutely be neat for you in this sector. And of course it helps. And I would say almost everyone I meet is also massively driven by mission and by the goal of leaving a better planet than we're currently on track for.

Lisett Luik: 24:06

But I would say, you know, if we limited ourselves to just people who have degrees in environmental something, we would not nearly have enough people. So we're very open to career switchers and sector switchers. And at Arbonix, I think in the team I'd say, of the 22 people we are now, maybe two had a background in climate before and then one was a professional forester. But everyone else is coming from different sectors and what they're doing is they're applying their skills to this because they care a lot and they're willing to learn a lot about the sector, but really ultimately they're very, very good at something functionally, so they have a very spiky skill in that way, and I think that that is probably the best way you can get into this sector.

Ryan Grant Little: 24:49

I love that answer and I feel also you know from my own observations that we need people with just you know, just fundamental business skills and also people with sales skill that we definitely need in the sector as well. But I'm with you that I love the general values alignment of the people who have chosen to have careers in climate. So you get to you know one of the big bonuses is you get to work with values, aligned people in general.

Lisett Luik: 25:14

I love it.

Ryan Grant Little: 25:15

As for the mission of Arbonics, how can people help? What kind of people are you looking for? Are you hiring? Are you looking for customers? Are you doing a financing round, and where's the best place for them to get in touch with you?

Lisett Luik: 25:27

The best place to get in touch with us in general is through our website, which is arbonicscom. We have just gone through a big hiring spree so we're not actively hiring right now, but I'm sure we will be again in the coming months and we're always thrilled to speak to people who are interested in the space and explore if there's areas we could cooperate on, are interested in the space and explore if there's areas we could cooperate on. We are, of course, particularly interested always in speaking to people who own forestland or are active in that space, not only to potentially onboard them as clients, but also just to learn from them, because we think there's a lot of wisdom in that population. So yeah, I would say, if any of this resonates, feel free to reach out on either arbonicscom or I'm foundable on LinkedIn or on threads as well. I'm always happy to chat anything nature based or climate tech or just entrepreneurial life in general.

Ryan Grant Little: 26:20

Great and, as always, I'll put links in the show notes. Lisett, thank you so much for joining me today.

Lisett Luik: 26:24

Thank you, it's been great.

Ryan Grant Little: 26:27

Thanks for listening to another Climate Tech Podcast. It would mean a lot if you would subscribe, rate and share this podcast. Get in touch anytime with tips and guest recommendations at hello at climatetechpodcom. Find me, R ryan Grant Little, on LinkedIn. I'll be back with another episode next week. Bye for now.