Conflict and Project Finance: Exploring Options for the Better Management of Conflict Risk

This paper looks at the connections between conflict and project finance, and explores how financial institutions may adopt a ‘conflict-sensitive’ approach to finance by improving their understanding of the two-way relationship between projects and violent conflict.

Until now the financial sector has had limited involvement in international debates on business and conflict. This background paper seeks to stimulate greater consideration of conflict risk and a more constructive path for project finance backed investments in conflict-prone regions.

While there is a cluster of factors that point to project financiers’ particular exposure to conflict risk, the project finance community is at the same time well-placed to take remedial steps, to both protect their own investments and ensure that their business is not impacting negatively on those affected by violent conflict or the wider objectives of their own institutions.

The paper concludes that a conflict-sensitive approach to project finance requires financial institutions and other actors to understand the conflict context in which a project is developed. In addition, they must recognise the interactions between the project activities and that context; and from there act to prevent any negative impacts that may be the result of that interaction.

[Summary Source: International Alert, Eldis]