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