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7 Steps to turn conflict risk into opportunities for responsible business

Conflict & Peace

Both business leaders and other groups within societies around the globe think Sustainable Development Goal 16 –focusing on the promotion of peace, justice, and solid institutions– is a key priority. With over 200 violent conflicts globally, the risks and impacts of war are a threat for many companies. Whether you’re operating in areas wracked by armed conflict, sourcing materials from high-risk regions, or facing social conflict in neighboring communities, preventing conflict and promoting peace is a necessity to guarantee long-term success. How? Below are 7 actions you can take to turn conflict risk into opportunities that create value for society and your business.

This is a blog in the FairChange series Social Impact: Strategies for Success, about 5 key areas of opportunity to upscale the value you create for society – and for business.

Businesses thrive in stable and secure environments with sound opportunities for sustainable growth. Of course, there are enterprises that make money from war in an unethical way. Even trusted companies with a solid reputation may directly or indirectly benefit from violent conflict when operating in contexts where government oversight is weak or absent. However, these are not the majority of businesses.

For most global and local companies, conflict is bad for their business. Violent struggles between armed actors in a company’s operating context or social conflict with or within neighboring communities result in high levels of risk, unstable environments, and significant costs.

So, the business case for peace is quite clear.

Or –is it, really?

Promoting peace: not your business?

Well, in our work with companies and other private sector organizations in conflict-torn areas we’ve seen that the business case for supporting peace is not always that obvious.

Often, companies shy away from engaging in peacebuilding activities –beyond measures to prevent conflict risks that affect operations– to avoid getting involved in political controversies and ideological clashes at the root of a region’s conflict. Sometimes fear of legal consequences from real or alleged involvement in incidents during war times may hold them back from taking an active stance on peacebuilding.

And in many other cases businesses tell us they are willing to contribute –they just don’t know what they can do to support peace other than providing jobs and operating within legal boundaries.

Our answer always is: as a company you have many opportunities to prevent conflict and support peace, no matter if you’re a small or a large business and no matter in which sector you operate. Even if you’re not based in a war-torn area, you can directly or indirectly contribute to conflict prevention and promoting peace.

In this article we’ll describe 7 steps your company can take to turn conflict risk into opportunities for peace building, and for doing business in a socially responsible way:

  1. Invest in regions recovering from conflict
  2. Avoid conflict risks in your supply chain
  3. Create local jobs
  4. Promote local enterprise development
  5. Include human rights into your risk management processes
  6. Reduce climate change risks in your operations and your supply chain
  7. Build trust through an ongoing dialogue with communities

But before we describe these seven steps in more detail, let’s first be clear about what we mean when we talk about ‘business and peace building’.

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Before we describe these seven steps in more detail, however, let’s first be clear about what we mean when we talk about ‘business and peace building’.

What is peacebuilding and how does it involve business?

Opinions among researchers and thought leaders differ on what ‘peace’ is exactly. As a general working definition, at FairChange we understand peace as the absence of armed violence or the reduction of violence to a minimum within a society and in a company’s operating environment.

According to a study published in the Journal of Conflict Risk, 40% of countries that are recovering from war return to their state of conflict within a decade, and nearly half of all civil wars are due to post-conflict relapses. Today, experts agree that companies that invest in peace are vital in breaking that cycle.

Promoting peace or peacebuilding by businesses refers to actively engaging in activities that contribute to the reduction or end of armed conflict –often in alliances with local authorities who are primarily responsible for guaranteeing peace in their jurisdictions, and with other actors such as civil society organizations.

The area of business and peace also covers interventions aimed at preventing and mitigating social conflict in a company’s operating context. Examples are disputes with local communities around human rights incidents or environmental damages related to business activities. In some cases, these differences can lead to acts of obstruction or even violence.

Businesses can prevent conflict and promote peace through their social investment strategies, commercial activities, advocacy, and relationship management with key stakeholders, among others. The reasons to do so are compelling. The Institute for Economics and Peace (2019) finds that over the last six decades Gross Domestic Product (GDP) growth was three times higher in highly peaceful countries than in countries with low levels of peace. A thriving economy reduces business costs, improves efficiency, and favors healthy markets.

Supporting the SDGs for peace and prosperity

The UN Sustainable Development Goals (SDGs), launched in 2015, have driven renewed interest in the topic of business and peace. The 17 Global Goals, as they’re also called, are underpinned by a commitment to the triple bottom line of people, planet, and prosperity, which are complemented by the additional “p’s” of peace and partnerships.

Sustainable socio-economic development cannot be obtained without peace, and companies across countries and sectors have an important role to play in implementing this commitment.

Goal 16 and other SDGs include universally endorsed targets that help companies address the challenge of preventing conflicts and promoting peace in their own operations and within broader society, through public-private alliances or partnerships with other actors, such as civil society organizations.

According to the YPO Global Leadership Survey 2019, 30% of chief executives and 22% of young business leaders consider SDG 16 on peace, justice, and strong institutions to be one of their top-4 areas of concern. This means your company –whether it’s large or small, and whether it’s based in a conflict area or not– has a great opportunity to join like-minded leaders and become a front runner for peace and prosperity.

7 steps to turn conflict risks into benefits for your business and local society

Depending on your core business and specific context, there are many steps your company can take to prevent conflict and promote a secure and stable operating environment, benefiting both business and society. Here are the 7 business actions we’d like to highlight in this article:

1.     Invest in regions recovering from conflict

If you’re a local company in a country affected by armed violence or an international business exploring new operating contexts, investing in regions that are recovering from conflict can be an interesting business opportunity, while helping to prevent a return to violence at the same time. According to the Global Peace Index 2019 the economic cost of violence for the ten most affected countries –including Syria, Afghanistan, Iraq, Central African Republic, Somalia, and Colombia–ranges from 22 to 67% of their GDP. This is the result of higher costs in the form of deaths and injuries caused by violence, terrorism, losses from refugees and internally displaced persons (IDPs), and losses in economic activity due to violence.

As an internationally operating firm or a domestic company, by deciding to invest in regions affected by these burdens you help create stable socio-economic environments. It will motivate local populations to stop migrating to other areas and attract returning refugees or IDPs. You can also contribute to technology transfer and provide access to national, regional, and global markets.

The experiences of companies operating in conflict areas show that a solid context analysis and a focus on opportunities, not risks, are critical. The perception of risk from the outside is sometimes at odds with reality, private companies in war-torn countries documented by Fast Company often find. Although in some specific regions or time periods peaks in violence and insecurity occur, overall operating environments can be fairly stable. Often, business operations are not targeted by warring parties.

Investing in post-conflict countries has other advantages too. In many cases, the entrepreneurial spirit of populations affected by war and their readiness to invest in a new and prosperous future are important drivers for economic recovery and contribute to favorable business environments and expanding markets.

According to fund managers cited in a New York Times analysis, while initially, the investment costs may be low, regions recovering from conflict often show fast growth perspectives.

Demographic trends favor companies willing to invest in these areas. The Global Humanitarian Overview 2019 of the UN Office for the Coordination of Humanitarian Affairs (OCHA) demonstrates that populations in fragile and conflict-affected regions have a growth rate of 2.4% compared to 1.2% globally and are urbanizing by 3.4% each year, compared with the world average of 2%. This opens up important market opportunities for companies who start operations in these regions and can also bring significant first-mover advantages.

Of course, if your company decides to invest in conflict-affected regions it should do so in a responsible way, putting sustainable and inclusive development objectives alongside profit-making. Respecting human rights, local capacity building, and sharing benefits with local societies must be central features of your investment policies.

2.  Avoid conflict risks in your supply chain

Ensuring that your supply chain is conflict-free is a key contribution that your company can make to local and global peace. Whether you’re a domestic player with operations in conflict-affected regions within the national territory or an international corporation sourcing from countries at war, you should take solid measures to reduce the risk of your suppliers and subcontractors being directly or indirectly involved in the dynamics of war economies.

National and multilateral government measures in different parts of the world aim to regulate business conduct regarding so-called ‘conflict minerals’. The extraction of these materials –mainly commodities such as tin, tungsten, tantalum and gold –also known as 3TG minerals– sometimes finances human rights violations and armed conflict.

An example of these recent measures is the EU Conflict Minerals Regulation. It demands that as of 2021, importers of 3TG minerals to the European Union must carry out due diligence on their supply chain to assess if the minerals have been mined and processed responsibly.

The OECD Due Diligence Guidance for responsible supply chains of minerals from conflict-affected and high-risk areas (2011) has become the industry standard for mineral supply chains. It provides useful oversight on the essential steps to responsible purchasing decisions and practices for any company that sources minerals from such countries.

Although most tools and guidelines that are currently available on responsible supply chain management focus on conflict minerals, there are also significant risks in some other economic sectors. Just think of garment supply chains involving regions impacted by or recovering from war, such as Sri Lanka after three decades of war, or industries sourcing from conflict-torn countries that heavily depend on supplying agricultural products. The Practical Guide on responsible sourcing in agriculture and forestry issued by the non-profit organization Proforest is a useful, freely available tool on this topic. It helps your company identify, prevent, and manage risks related to land conflicts, forced displacement, and other challenges faced by small-scale farmers and rural populations in war-torn environments.

3.  Create local jobs

Roughly 2 billion people live in countries experiencing situations of fragility and armed violence, OCHA calculates. These populations see their livelihoods affected and face important shortages of decent jobs. Left unattended, this situation can lead to increased poverty and inequality, and to social unrest or even a revival or perpetuation of armed conflict.

Creating work opportunities for local people in conflict-affected regions is an important contribution your company can make to socio-economic recovery. According to the Recommendation on Employment and Decent Work for Peace and Resilience adopted by the International Labor Organization (ILO) in 2017, freely chosen and decent jobs are vital to promoting peace and preventing crisis situations arising from conflicts and disasters. They help people recover from the impacts of conflict and build resilience against present and future shocks.

If your company creates jobs that respect worker’s health, safety, and well-being and pays adequate wages adjusted to local living standards, it helps reverse the trend of unemployment, underemployment, job informality, and precarious working conditions.

Internships and on-the-job trainings are effective ways to improve skills and competencies of job seekers and workers and contribute to the strengthening of local human capital. Experiences across the globe cited by Justino (2011) demonstrate that human capital is a key factor for sustainable socio-economic development, especially in contexts recovering from conflict.

According to the Institute for Economics and Peace (2018) research also indicates that improved human capital has a longer-lasting positive impact on labor productivity than improvements in physical capital.

Whenever possible, your company should try to incorporate job seekers from vulnerable groups, such as former fighters, persons with disabilities caused by war accidents, and ethnic minorities, depending on the specific local context you’re operating in. Excluding certain population groups can feed into past grievances about socio-economic exclusion and deepen existing divisions, which can ultimately lead to a revival of violence.

There’s also growing evidence that promoting the economic empowerment of women and their inclusion in the workplace is key to building a healthy post-conflict economy and promoting long-term development. Read more in our blog post Investing in women for peace.

4.   Promote local enterprise development

Strengthening local enterprises and investing in local startups in your company’s operating area is a powerful way to stimulate economic diversity, provide income for small-scale producers and their families, and improve levels of prosperity in regions affected by conflict. Buying locally and stimulating the capacity building and innovation skills of small businesses also benefits the quality of goods and production processes in your supply chain.

Evidence demonstrates the importance of investing in local businesses in contexts impacted by or recovering from war as a strategy to reduce the risk of a return to violence. International Alert (2006) has documented the best practices of local businesses and other private sector organizations committed to local peacebuilding across the globe. This series of publications is a source of inspiration if your company decides to support local businesses, with multiple examples of how the private sector in war-torn countries can drive transformations towards peace, the reintegration of ex-combatants, and reconciliation between groups that were divided during war.

Small and medium enterprises (SMEs) are the main sources of job growth worldwide and are important providers of income and stability in regions recovering from war. At the same time, however, SMEs are especially vulnerable to challenges such as limited business skills, a lack of access to finance, and insufficient capacity for innovation. Access to regional, national, and international markets is often extremely difficult in areas where armed violence has damaged roads and distribution centers, informality thrives, and networks with buyers and distributors are practically non-existent.

Helping small-scale agricultural producers, women-owned businesses, and other local enterprises to address these challenges –preferably in strategic alliances with private partners and public entities– is a great way for your company to contribute to local businesses building local peace.

5.   Include human rights into your risk management processes

Operating in areas that suffer from war and armed violence greatly increases the risk of human rights incidents. These risks can affect your company’s workers, for example when illegal armed groups engage in extortion, kidnappings, or even physical harm and in doing so, violate personnel’s rights to life, security, and freedom of movement. At the same time, there are heightened chances of your company getting involved in human rights incidents affecting local populations and specific individuals such as labor union leaders or environmental activists. These incidents can be caused directly and indirectly by your business activities or those of suppliers and commercial relations.

Among the most common risks are being directly or indirectly complicit in the displacement of local populations as a result of violence, threats, and intimidation from warring parties, not respecting the legitimate rights to land of communities who depend on it for their livelihoods, and human rights incidents caused by security forces contracted to protect a company’s assets. The Human Rights and Business Dilemmas Forum designed by the UN Global Compact and Verisk Maplecroft includes a wide range of potential incidents and actions your company can take to effectively manage them.

Implementing the provisions of the UN Guiding Principles on business and human rights (2011) is an essential first step to managing human rights risks in conflict and post-conflict contexts. This voluntary standard –endorsed by governments and companies around the world– stresses the importance of heightened human rights due diligence for companies that operate in areas plagued by armed violence. Human rights due diligence includes the identification, prevention, and mitigation of the adverse impacts your company can have on these rights, as well as disclosing how it manages risks and unintended impacts. Read more about the UN Guiding Principles in our blog post 7 Ways respecting human rights adds value to your business.

You should also avoid being complicit in human rights incidents committed by others and ensure that your actions do not exacerbate existing situations of violence. This includes making informed decisions about starting or continuing operations in high-risk environments where you might risk getting drawn into rights abuses by the host government. The Danish Institute for Human Rights provides a useful guide to help you make informed decisions in these contexts.

6.  Reduce climate change risks in your operations and your supply chain

The use of and access to natural resources has caused, triggered, and intensified armed conflict in many regions. Climate change aggravates the risk of disputes and violence which involve or negatively affect businesses. So, if your company takes measures to prevent and mitigate climate change impacts and responsibly manages its use of natural resources, especially in fragile operating environments, it helps reduce the risk of violence.

Of the conflicts registered by the Conflict Barometer 2018, 64 violent crises and wars involved resources, such as  oil and coal extraction, access to water, land use, and food trade, while these were at the root of another 29 disputes and non-violent conflicts. Often, companies are directly or indirectly affected.

In these scenarios businesses are either victims of attacks on facilities, blockades, threats, and injury over grievances around environmental damage, or complicit in violent incidents such as attacks against civilians who defend their environmental rights, perpetrated by authorities or private security forces hired to protect the company. The Environmental Justice Atlas documents the cases of hundreds of firms operating internationally which are involved in–-often long-term–-social conflicts around environmental issues. Many sectors are affected, including extractives, nuclear, waste management, infrastructure, and tourism.

A recent Stanford study (2019) finds that the risk of armed conflict is expected to increase substantially as a result of climate change. In a scenario with a 4 degree Celsius increase (approximately the path we’re on if societies do not substantially reduce greenhouse gas emissions), the influence of climate on global security would multiply by more than five times, leading to a 26% chance of an increased conflict risk, according to the study.

If your company operates in environments where environmental risks and conflict risks collide, it can do a lot to prevent damage from occurring. Easterday and Ivanhoe (2017) stress the power of private corporations and investments to ensure sustainable development and, by doing so, contribute to more durable peace in post-conflict contexts. If managed well, natural resources can generate revenue for the government, which can be invested in policies for post-conflict transition. A responsible management of natural resources and the environment can provide the building blocks for developing sustainable livelihoods for communities affected by conflict. It helps to create employment and income stability, which are also critical factors for the return and integration of refugees and persons displaced by war.

7.   Build trust through an ongoing dialogue with communities

Conflict undermines trust in business. Conversely, doing business is more complicated in environments with low levels of trust. Creating an ongoing, transparent dialogue with neighboring communities and other relevant civil society actors, such as human rights groups, paves the way for improved relations and collaboration.

Trust is a fundamental element of social capital –which is often described as including high levels of social cohesion within communities and societies, enhancing their capacity to resist conflicts and crises (see for example: OECD Insights). Together, trust and social capital are considered key foundations for sustainable economic development, peace, and the creation of enabling business environments.

Research and data provider Our world in data cites evidence that there are higher levels of trust in countries with a higher GDP, and that countries with higher income inequality also tend to report lower levels of trust. Also, countries, where people are more likely to report trusting others, are countries where there’s less violence and more political stability.

In conflict-torn regions several dynamics contribute to low-level trust in businesses. For instance, local populations may perceive companies operating in their proximity to be involved in corrupt dealings with local authorities, be complicit in atrocities committed by illegal armed groups, and support repressive regimes.

Therefore, dedicating time and resources to careful relationship management with neighboring communities is key to securing your company’s social license to operate. It helps prevent disputes and social conflict between your organization and local populations. According to the UN and EU (2012), tensions are far less likely to evolve into violence and even armed conflict if those affected participate in decision-making processes with businesses operating locally.

Your next steps to turn social risks into benefits for your business and your stakeholders

In this blog post we’ve detailed 7 actions your business can take to prevent conflict and promote peace in ways that also benefit your business. Do you want to know more about the opportunities for making a positive impact through your commercial and social activities, relationship management, and other actions that create shared value for your company and for society?

Go to our free resource page on the FairChange Academy Digital learning Platform and download the other guides in the series “Social Impact: Strategies for Success”!