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The Rationale

New solutions to finance development in the world’s fragile and conflict-affected places are urgently needed. We need a new market for what we call Peace Finance – approaches that have a positive impact on peace and reduce risks for both investors and communities

Some 1.9 billion people, almost a quarter of the world’s population and most of the world’s extreme poor, live in the world's 60 fragile and conflict-affected contexts. Because of growing conflict, instability, and violence none of these countries are on track to achieve the Sustainable Development Goals (SDGs).

Sustainable development and peace ultimately require conflict-sensitive and peace-responsive private investment, but much investment cannot find its way to places of great need and opportunity because of risks related to peace, whether real or perceived. We know greater investment is possible: the world’s financial resources of almost 300 trillion dollars dwarf the cost of achieving the SDGs.

Herein lies the problem - the peace actions that could reduce conflict and fragility risks and open these markets to greater investment are underfunded and poorly aligned. New approaches are needed – we need to fundamentally rethink how peace and development is financed and how private investment can better reduce risks for both investors and communities.

Through existing feasibility research with financial partners on real potential investments, we have shown that peacebuilding activities closely linked to an investment can demonstrably lower financing risks thus improving net present values while also seeking measurable and intentional peace impacts.

While blended finance approaches have significantly grown and have successfully catalysed significant private capital in developing countries, existing approaches largely do not focus on peace impact. Further, more work needs to be done to ensure blended approaches minimize not just risks to investors but also to communities in fragile and conflict affected settings.

We need not just finance and investment in the context of conflict and violence but a market for what we call Peace Finance.

WHY IS
URGENTLY NEEDED?

FINANCE FOR PEACE

Conflict and violence is rising

2019/20 saw 54 active conflicts – which is at par with the record set in 2016 – and a record high of 47 minor armed conflicts. Internal conflicts are dominant.
Source: Aas Rustad (2021)
About 555 million people lived within 50 kilometres of a conflict event in 1990, compared with almost 1.2 billion—15 percent of the world’s population—in 2020
Source: Uppsala Conflict Data Program Georeferenced Event Dataset, Ostby, Aas Rustad and Tollefsen (2020)

Conflict is a major reason why poverty and hunger are going up

In 2020, 2.4 billion people were moderately or severely food insecure, up 44 percent (or 723 million people) from 2014.
Source: : FAO (2021), UNDESA (2015), UNDP HDRO (2022)

Connected to this, the SDGs are not being achieved

75% of world’s extreme poor – 1.8 billion people - live in 57 conflict affected countries that are not meeting any SDGs.

Private financial flows (FDI) to fragile and conflict affected places has seriously declined

Between 2012 and 2018, Foreign Direct Investment (FDI) declined by 53 per cent, leaving a massive gap in investment.
Source: PBSO, DPPA, PBSB, Background note on Financial Flows for Peacebuilding, (2021)

Existing Blended Finance approaches are not filling the gap

The least developed countries have only attracted 6% of all the private finance that ODA has mobilised. A variety of factors is responsible for this, but the principal cause is a failure to link development and peace strategies to private sector activity.
Source: : OECD and UNCDF (2020), ‘Blended Finance in the Least Developed Countries 2020: Supporting a Resilient COVID-19 Recovery’, OECD Publishing.

Yet, there is significant bankable opportunity in growing new categories of sustainable finance.

Global sustainable issuance more than doubled to $US1.64 trillion in 2021, from $US761 billion issued in 2020. If only 1% of this issuance was aligned with peace finance standards and impact frameworks, more than $16 Billion of peace enhancing finance could be raised.
Source: Bloomberg New Energy Finance

Conflict and violence is rising

2019/20 saw 54 active conflicts – which is at par with the record set in 2016 – and a record high of 47 minor armed conflicts. Internal conflicts are dominant.

Source: Aas Rustad (2021)

 

About 555 million people lived within 50 kilometres of a conflict event in 1990, compared with almost 1.2 billion—15 percent of the world’s population—in 2020

Source: Uppsala Conflict Data Program Georeferenced Event Dataset, Ostby, Aas Rustad and Tollefsen (2020)

Conflict is a major reason why poverty and hunger are going up

In 2020, 2.4 billion people were moderately or severely food insecure, up 44 percent (or 723 million people) from 2014.

Source: : FAO (2021), UNDESA (2015), UNDP HDRO (2022)

Connected to this, the SDG's are not being achieved

75% of world’s extreme poor – 1.8 billion people - live in 57 conflict affected countries that are not meeting any SDG's.

Private financial flows (FDI) to fragile and conflict affected places has seriously declined

Between 2012 and 2018, Foreign Direct Investment (FDI) declined by 53 per cent, leaving a massive gap in investment.

Source: PBSO, DPPA, PBSB, Background note on Financial Flows for Peacebuilding, (2021)

Existing Blended Finance approaches are not filling the gap

The least developed countries have only attracted 6% of all the private finance that ODA has mobilised. A variety of factors is responsible for this, but the principal cause is a failure to link development and peace strategies to private sector activity.

Source: OECD and UNCDF (2020), ‘Blended Finance in the Least Developed Countries 2020: Supporting a Resilient COVID-19 Recovery’, OECD Publishing.

Yet, there is significant bankable opportunity in growing new categories of sustainable finance.

Global sustainable issuance more than doubled to $US1.64 trillion in 2021, from $US761 billion issued in 2020. If only 1% of this issuance was aligned with peace finance standards and impact frameworks, more than $16 Billion of peace enhancing finance could be raised.

Source: Bloomberg New Energy Finance

We urgently need new solutions, and they can open significant positive opportunities. For example, if only 1% of 2021’s global issuance in sustainable investment categories was aligned with peace finance standards and impact frameworks, that would represent more than USD 16 billion of peace enhancing finance, equalling to:

2
X
Conflict prevention, security and peacebuilding ODA to fragile and conflict-affected countries in 2020 (USD 8 billion)
+
59
%
Increase FDI into fragile and conflict-affected settings by 59% from 2020 levels (from USD 27 billion)
4
X
Total global food aid pending in 2021 (USD 4.2 billion)

What does a market for Peace Finance require?

  1. New rigorous principles, standards and guidance for investors, government donors, industry verifiers, peacebuilding and development actors as well as communities that can build trust, credibility and verification regimes required to scale peace positive and prosperous investment.
  2. A pipeline of demonstrable examples, that can show new structures, approaches, partnerships, learning and ultimately positive investment and peace outcomes.

Why are new standards, impact frameworks and guidelines needed and why are they important?

While there is a large array of existing environment, social and governance (ESG) principle frameworks and impact frameworks that have been developed, many of these are not adequately tailored to help investors manage and reduce risks in fragile and developing settings.


This is partly reflected in the fact that in the growing area of SDG investing and blended finance, there are virtually no opportunities to invest in SDG16 – Peace, Justice and Strong Institutions. Further, it is important to learn from the experience of the Green and Social impact investing markets and avoid the potential of ‘peacewashing’ as ‘greenwashing’ and ‘social-impact washing’ have diminished investor trust and confidence and/or resulted in contradictory outcomes.


In order for private investment to play a meaningful role in supporting peace outcomes while also maximally reducing risks at the level of their investments, investment in fragile and conflict affected places need to first do no harm, be conflict sensitive and ultimately peace responsive and peace positive. To achieve this requires new partnerships between institutions, investors, industry, peacebuilding and development actors. New and existing principles, standards and governance mechanisms driving investments need to better consider the process of how key stakeholders are engaged; the partners selected to implement and manage proceeds; the metrics applied to monitor investments; and ultimately the degree to which investments engage, include and understand the political, economic and cultural context in which they are operate within.

© Finance for Peace 2023 
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