What is peace finance?

Peace finance is an approach to investing that accounts for the risks and impacts associated with investments in fragile and conflict-affected settings (FCS). Peace finance recognises that conflict and instability are fundamental realities for 80% of the global poor with significant repercussions for global stability, peace and prosperity. It is widely accepted that commercial activities in these regions can exacerbate conflict and instability or, conversely, mitigate them. Investments in FCS expose investors to a range of risks – including reputational, legal, and regulatory risks as well as the risk that conflict disrupts business activities. In a peace finance approach investors prioritise minimising the negative impacts of their investees; there may also be opportunities for investors to encourage investees to identify avenues to contribute to peace.

The missing peace in sustainable finance

Most asset classes, equities, bonds and companies in developed or emerging market portfolios are highly exposed to conflict and instability, either directly or through their value chains. Whether an investee company is extracting oil and gas, or sourcing cotton, leather coffee or cacao, its operations and/or supply chains are likely highly exposed to conflict risk.

Moreover, two of the most strategic global transformations – the energy transition and digitalization – rely on critical raw materials (copper, cobalt, tin, tantalum, tungsten, gold, etc.), which are sourced from a narrow group of FCS. While investors are increasingly active in climate finance, the energy transition is indeed fraught with conflict risk. ‘Clean power’ – in the form of solar, hydro and wind – requires securing access to land and natural resources, which may be implicated in conflict.1

The number of civil wars has almost tripled over the course of the past decade, with a six-fold increase in battle-related deaths since 2011.2

The OECD estimates that 1.9 billion people now live in FCS, amounting to 24 per cent of the global population.3

In 2022, the global economic impact of violence was estimated to be $17.5 trillion, equivalent to 12,9 per cent of the global GDP, or 2,200$ per person.4

See the FCS map here


Financial institutions are insufficiently prepared to address conflict-related risks

Investors underestimate the impact of conflict and instability on their portfolios, leading to misallocation/mispricing of underlying assets and/or expanding portfolios to FCS without mechanisms to analyse the relative risk posed by the context in relation to the cost-benefit of the venture. Most investors manage conflict through ‘exclusionary criteria’ (particularly related to oil and gas, weapons, etc. or countries on the list of ‘Sanctioned Countries and Territories’), overlooking the extent to which risk exposure crosses sectors and value chains.  Investors also tend to underestimate their ability to influence the conduct of investees with regards to their conflict impacts. Misallocation is enhanced by a weak understanding of “conflict risks” and their impact on portfolios.

“Conflict risks” include a range of potential impacts that arise from business activities that may create, drive, sustain, or intensify conflict in a range of ways (as illustrated in the table below).  FCS are often characterised by weak state capacity and regulatory frameworks, high levels of corruption, widespread human rights violations, sustained conflict and violence, and political instability.  It is well established that when companies operate in FCS, their presence and activities interact with the context to shape the impacts that a company has on its stakeholders and on the operating context itself. While companies may deliberately position themselves as neutral actors with respect to conflict and violence, their impacts are never neutral with respect to conflict.

Conflict risks thus create ‘double materiality’: in addition to the reputational, legal, financial, security and human rights risks that conflict contexts pose to companies, companies also impact upon conflict – and vice versa. Irrespective of the company’s intentions, a company that is insensitive to the dynamics of conflict and fragility may ultimately – even if inadvertently – generate, sustain, or drive conflict, either directly or indirectly. Therefore, investors in almost any sector or industry may be exposed to these risks as well.


See the TrustWorks Global Conflict Risk Typology here


There are important legal and regulatory risks to take into account. In recent years, there has been an increasing recognition that human rights-based approaches alone are insufficient to deal with the scale and nature of risks in these contexts. The policy and regulatory environment is changing to reflect this emerging consensus, raising the bar for companies and investors alike; two key illustrative examples are below:

  • The EU Corporate Sustainability Due Diligence Directive5: The current draft of the EU-CSDDD includes language that would make it mandatory for companies to “undertake heightened, conflict sensitive due diligence…in conflict-affected or high-risk areas.”6
  • In July 2023, the UN Working Group on Business and Human Rights strongly recommended that the EU-CSDDD “expressly includes the entire financial sector within its scope without developing a special regime for that sector’s human rights due diligence obligations.” 7

Managing risks and leveraging opportunities

Investors can use their leverage to encourage business practices that minimise impacts that can intensify conflict and instability

Peace finance as an approach is grounded in a set of internationally-recognised standards of conduct, best practices, normative frameworks, law and soft-law and regulations. The below six elements of the peace finance approach apply in different ways to different companies operating in different industries and circumstances. It is not a “check-list” to be applied in the same way in all cases, but rather presents core elements that need to be tailored to suit the investment in question, and then reflected in core policies, practices, monitoring and accountability mechanisms of the investor and the investee:

  • International Humanitarian Law (IHL): IHL obligates companies to avoid providing material support, such as revenues, to illegal armed groups in jurisdictions where conflict exists as a matter of law. IHL also covers complicity in war crimes and atrocities, among other things.
  • Responsible Business Conduct: The OECD’s Due Diligence Guidance for Responsible Business Conduct and Guidelines for Multinational Enterprises include responsible sourcing, particularly of minerals and metals that may be tied to conflict.
  • The UN Guiding Principles on Business and Human Rights (UNGPs): The UNGPs is the pre-eminent international standard defining companies’ responsibilities vis-à-vis human rights. The UNGPs suggests that since the risk of being involved with gross abuses of human rights in conflict-affected areas is heightened, approaches to managing these risks in these areas must also be heightened.
  • Heightened human rights due diligence (hHRDD): This entails identifying and mitigating the impact of business activities on both human rights, and on the conflict itself. Heightened conflict-sensitive due diligence is referred to in the context of the emerging EU CSDDD regulations (see above).
  • Relevant national and international legislation: In response to the rapidly changing international policy environment, many national governments have also developed legislation on issues of relevance to the peace finance space. For example, there is the Swiss Supply Chain Law, the French Duty of Vigilance, the German Due diligence in Supply Chains Act, to name only a few. The EU-CSDDD will also be pivotal here.
  • Conflict-sensitivity: Refers to an approach to addressing the ways in which a company’s activities (operations, supply, value chains) impact upon conflict. Conflict sensitive business practices necessitate companies to analyze the context in which they are operating by identifying drivers of conflict and the ways in which the company activities interact with those dynamics. Through this analysis companies can identify how they can adapt their business activities to minimize the negative impacts on conflict and fragility, and maximise positive impacts on the context, including on peace and stability.


The highest priority for peace finance is to encourage investors to use their leverage vis-a-vis investee companies to encourage business practices that minimise impacts that intensify conflict and instability; there may also be some cases in which investees have opportunities to operate or source in ways that contribute to peace and stability. From the above list, conflict-sensitivity is the only approach that can foster positive impacts on conflict.

Peace finance is thus analogous to term “climate finance”: broadly speaking, the priority amongst investors is not to finance the climate per se, but to finance efforts aimed at reducing emissions and reducing the vulnerability of human and ecological systems to negative climate change impacts; where possible such efforts are also designed to increase resilience. Similarly, the priority of peace finance is not to turn financial actors into “peacebuilders”, but to engage them in the vital work of reducing negative impacts on conflict, violence and instability, and where possible exploring opportunities to contribute to peace through their investments.


The Peace Finance imperative is both pressing, urgent and timely

The war in Ukraine has demonstrated that market volatility generated by conflict impacts investment portfolios irrespective of whether they are invested in Ukraine or Russia. Moreover, the worst forms of human rights abuses happen in areas affected by conflict, demonstrating that peace finance is a vital component of any sustainable finance approach.

And yet, “peace finance” is rarely integrated into company due diligence, ESG analysis, engagement strategies or impact frameworks of asset managers nor as part of the obligations required by the majority of development finance institutions. It is time to recognise that conflict, much like climate change, is a defining feature of modern times, which will require concerted effort to surmount.

Indeed, with global conflict on the rise and a rapidly changing policy environment, the Peace Finance imperative is both pressing, urgent and timely. Investors have a clear interest in peace and a critical role to play in managing conflict risks.

Steps investors & companies can take

Opportunities for investors

  • Put in place policies and governance processes to reflect the need for heightened human rights due diligence and/or conflict-sensitivity for business activity in fragile and conflict-affected settings (noting that hHRDD and conflict-sensitivity are not the same).
  • Ensure internal alignment, knowledge and understanding of whether the investor wishes to meet ‘minimum standards’ (particularly those related to hHRDD) or go beyond them (by applying conflict-sensitivity approaches); align human and financial resources accordingly.
  • Undertake portfolio reviews to ascertain the level and scope of exposure to conflict risks and impacts across existing investments.
  • Put in place company-wide frameworks to assist in decision-making processes related to new investments. The aim should not be to de-risk by discouraging investments in fragile and conflict-affected settings, but to de-risk by ensuring that responsible, conflict-sensitive processes are in place in such contexts.
  • Prior to new investments or in the context of ongoing investments, adopt a proactive investee engagement approach to raise awareness and understanding of conflict-related risks and peace-related opportunities across the portfolio.
  • Put in place a monitoring system to proactively anticipate and/address conflict-related controversies in the portfolio, and/or to be able to measure progress in minimizing negative and maximising positive impacts.
  • Develop accountability/assurance mechanisms for new and, when possible, ongoing investments that ensure that investments are embedding conflict sensitive policies and practises, monitoring those activities, reporting on them accordingly, and identifying options to mitigate negative impacts and risks.


Opportunities for companies

  • Distinguish between operations and supply chains in FCS and non-FCS.
  • Ensure heightened human rights due diligence and/or conflict-sensitivity is reflected in relevant policy frameworks and governance processes, with appropriately aligned internal capacities and resources.
  • Conduct heightened human rights due diligence and/or conflict-sensitivity analyses and put in place appropriate road maps/strategies in those contexts where the company exposure to conflict risks is significant.
  • Put in place appropriate monitoring systems.
  • Ensure staff have appropriate knowledge and capacities to operate and/or source responsibly in FCS through tailored training, mentoring and accompaniment programmes.