Direct impact investing for companies.

Impact investing means making direct investments that generate a positive, measurable social or environmental impact alongside a financial return. It is usually associated with individuals, but companies are increasingly interested too.

The motives are not only altruistic. A company may want to support its suppliers, perhaps farmers in developing countries or local manufacturers, by investing directly in them, or to invest in development projects in the communities where those suppliers operate. That improves the position of suppliers and their communities, and it returns something to the company through a stronger supply chain, mitigated continuity risk, assured quality and less price volatility.

The problem is how to structure it. Donating money or resources is possible, but grants are typically accounted for as expenses and can weigh on results. A direct investment or an interest-free loan carries its own accounting complexity.

Securitization offers an alternative: a financial instrument that represents the company's investment in the supplier or the project.

The structure is close to the SME financing case, with one difference. There the supplier creates the product. Here the investor does. A special purpose vehicle makes a loan to the supplier, and that is packaged as a standard, bankable investment product which the company purchases.

The transaction is straightforward and so is the accounting. The company holds an investment rather than booking an expense, and the supplier gets funded.