Recently, the HeavyFinance CEO, Laimonas Noreika, was interviewed by Shauli Zacks from SafetyDetectives. The interview looks at how the climate tech was born out of the necessity to provide small and medium-sized farms with the capital needed to transition to sustainable methods. The two discuss anything between risk management to how HeavyFinance is measuring their goal of removing 1 gigaton of CO₂ emissions by 2050.
Can you introduce yourself and talk about what motivated you to establish HeavyFinance?
My name is Laimonas Noreika, I’m the CEO and co-founder of HeavyFinance. I’ve been in the alternative finance business for close to 15 years. Previously, I worked in a peer-to-peer lending platform that I founded, FinBee. After exiting the company, I was consulting with some experts in the agricultural sector who introduced me to the concept of carbon farming where farmers implement regenerative farming practices which bring incredible long-term benefits. I became aware that many farmers are already implementing these sustainable practices, however they lack capital to expand these methods further or others who simply lack capital for the transition.
This is why HeavyFinance was created, to address the financial gap in the agriculture sector. As a company, we created the tools and products to help small and medium-sized farms get the financing they need to grow. In no time we expanded to five markets: Lithuania, Latvia, Portugal, Poland, and Bulgaria.
Each time a farmer says, “I’m willing to switch from conventional ways to regenerative farming,” we provide a zero-interest loan, so such farmers can transition to the way of farming where instead of being a polluter, they become a sequester of carbon. We figured out that this is what makes our journey exciting, what makes farmers thankful to us, and we are 100% focused on this area now.
What types of products do you fund?
We have three different products:
- Traditional agricultural loans: This product is for where a farmer needs to buy a new machinery or wants to expand their property. We provide a secured loan; it could be up to €15,000 if uncollateralized or up to €100,000 if the loan is collateralized. The farmer gets the funding, and they can use it for the necessary purchases.
- Green loan: This is a loan for when a farmer wants to switch from the conventional ways of farming to regenerative ways of farming. We provide a 0% interest loan for such farmers to help them make the transition or expand the sustainable practices they have in place.
- Carbon farming: This is for farmers who are either already implementing some regenerative farming practices or are just starting. With this product, the farmer is not looking for financing, just help in entering the carbon market. For such farmers, we finance all operations and soil sampling to collect the required data to prove the environmental impact of their farming methods is eligible for generating carbon credits.
How do the investors in the green loans make money from the nature-based carbon credits? What’s the impact on sustainable agriculture?
The moment a farmer transitions from conventional to regenerative farming practices, they become eligible for the voluntary carbon credit market. However, the challenge lies in the fact that no single farmer can independently navigate the bureaucratic process and the complex mechanisms required for auditing and proving carbon sequestration. They need companies like us, called proponents, to support them and place them in a single large group, then we can acquire those credits.
If the investor is providing a 0% interest loan to the farmer, he doesn’t expect an interest rate. Rather, he expects to receive carbon credits. That’s how instead of interest rates, the investor gains access to the voluntary carbon market, with nature-based carbon credits generated by European farmers enrolled in our program.
How does HeavyFinance approach risk management in the context of these agricultural investments?
We need to be careful with the risk because farming is a highly volatile market. A lot depends on weather conditions and other factors that are out of our control. However, agriculture as an industry has one of the largest default rates but the lowest loss of principle, so we have to have it in mind as well. For these purposes, what we do is try to understand how the farm is doing as a business. We read balance sheets, profit and loss statements, we collect the same type of data as a regular financial institution.
Then, we adjust payment schedules for the farmer, according to the type of farming they’re doing, such as livestock or grain production, for example. We also take into consideration that farmers are not paid monthly but rather seasonally, depending on harvest.
Lastly, we take collateral to secure the investors and ourselves. Should the farmer default, we have security that the loan can be repaid.
We also divide farmers into two groups; traditional and sustainable. While working on large amounts of the fields with regenerative practices, we found that regen farming is way more resilient to climate change, therefore the cash flow is more stable. So if the farmer is doing something more than conventional farming, then typically they get lower interest rates or even products with zero interest rates and so on.
I’ve seen on your website that you have the goal of removing 1 gigaton of CO₂ emissions by 2050. How do you measure and track that progress?
In the last two years, we did more than 10,000 soil samples around the fields in the countries where we operate. We have a data science team and soil scientists who work with the regenerative farmers, and we have full data to prove that if the farmer is implementing regenerative farming methods, one hectare of land is on average removing 2.3 tons of CO2 per hectare per year.
So, 2.3 tons per hectare per year is a significant amount. With this idea, we raise a target for ourselves. That one gigaton until 2050 should be addressed. It’s not us who do the job, right? But we promote and incentivize. One gigaton is relatively big and small at the same time. For us, it’s big. However, when considering that humanity emits approximately 40,000 gigatons of CO2 annually, our 30 year goal of addressing one gigaton may seem marginal. Nonetheless, the collective effort of more companies moving in this direction can only lead to a better outcome.