Applying conflict sensitivity and building resilience through private sector investment
Fragile and conflict-affected settings (FCAS) are increasingly central to development finance institutions’ (DFIs) mandates. Around 40% of the world's extreme poor live in FCAS today, a share projected to rise to 70% by 2030. For DFIs, engagement in these markets is not optional. The challenge is how to invest in ways that are commercially viable and supportive of long-term stability.
Investment decisions in FCAS are not neutral. Choices about sectors, geographies and value chains redistribute economic opportunity, shape perceptions of inclusion and exclusion, and influence local power dynamics. Traditional ESG frameworks provide an essential foundation, but they are not sufficient to navigate the dynamic, context-specific risks that define these environments. Conflict sensitivity builds on these approaches – incorporating analysis of conflict drivers, political economy and stakeholder perceptions – to enable better structured and informed decision-making throughout the investment lifecycle.
This report – part of the Africa Resilience Investment Accelerator's (ARIA) Foundations of Growth series, developed with Proparco, IFC, British International Investment and FMO – explores how DFIs can apply conflict sensitivity to strengthen investment decisions, manage risk and maximise development impact in FCAS.
The publication includes:
A framework for conflict-sensitive investment: What conflict sensitivity is, why investment decisions are not neutral in FCAS, and how this approach goes beyond standard ESG compliance to account for local power dynamics and conflict drivers.
Applying conflict sensitivity across the investment lifecycle: How conflict-sensitive thinking can be embedded across strategy and capital allocation, and project design and implementation.
Embedding conflict sensitivity at the project level: Guidance on due diligence, investment structuring, stakeholder engagement, technical assistance and adaptive management in FCAS.
Case studies: Including ARIA's conflict sensitivity assessment in Ethiopia, which used countrywide analysis to guide decision-making across agriculture, energy and financial services
Enhancing institutional capability: How DFIs can build the governance, coordination, systems and incentives needed to apply conflict sensitivity consistently at portfolio scale
This report is part of our Foundations of Growth series of publications, which shares the trends, lessons, challenges, and opportunities of investing in frontier markets in Africa. Foundations of Growth is aimed at helping development finance institutions, donors and impact investors develop their strategies for operating in these markets.