Zones affected by or prone to conflict pose major challenges to companies. If they make the wrong decisions, they risk disruption to their operations, expropriation of assets, currency restrictions, damage to their reputation and potential legal liabilities. However, companies which are conflict-sensitive, and which analyse and adapt to the conflict context, are able to build effective relations that will not only reduce the risks associated with instability, but will contribute to an environment where peace can be accompanied with sustainable development and improved returns on investment.
According to the World Bank, over 22 of the 48 countries in sub-Saharan Africa are considered fragile. Each of those present unique challenges for investors, who not only have to cope with heightened risks of political and socioeconomic violence, but also weak governance structures.
The role of companies operating in fragile environments is often associated with accusations of supporting repressive regimes, or reports of disgruntled communities protesting against unfair treatment or human rights abuses. Those businesses have come increasingly under the spotlight. At the same time, international frameworks and best practice for companies have emerged, outlining how to behave more responsibly, ‘do no harm’ and contribute to sustainable development; among those, the UN Global Compact Guidance on Responsible Business in Conflict-Affected and High-Risk Areas.
With that, companies are becoming increasingly aware that the interests of stakeholders and shareholders are not always opposing, but rather can be aligned. Studies show that the valuation of mining operations can vary significantly based on stakeholder cooperation and that disgruntled communities can cost projects with capital expenditure between $3bn and $5bn (roughly $20m per week) in delayed production in net present value terms. Simply put, business plans which emphasise sound environmental practice, social development and economic progress can improve a company’s performance.
That realisation has driven advances in political, environmental and social risk assessments. But the problem is that many of those assessments view conflict exclusively as a risk to the company, without assessing the interplay between its operations and the fragile environment. Hence, companies often struggle to consider the complex causes of conflict and the impact their own operations may have on existing conflict dynamics. This often leads to ineffective social development activities, while the risks of operating in these fragile environments persist.
High risk areas are complex because they are frequently characterised by weak government institutions, ineffectual civil representation, a lack of regulatory framework, a breakdown of societal structures, and a lack of trust in state institutions as well as mistrust between different sections within society. These weak governance structures and resultant local and national tensions often increase risk for companies, as investments contribute to an economy which is geared towards maintaining the political and economic status quo. This means activities that could be perceived as promoting development by providing much-needed employment can actually increase ethnic tensions by benefiting one group over another, or by promoting economic recovery programmes for resettled communities, which can exacerbate existing land disputes.
Conflict-sensitivity takes the fragile context as the starting point, and demands that companies not only understand the risks that conflict could pose to their operations but also the impact their operations could have on that conflict. Experience at International Alert has shown that by integrating conflict-sensitive tools into existing risk mitigation and stakeholder engagement strategies, companies will be better able to reduce their risks as well as develop more effective social development activities, contributing to a more sustainable strategy for generating shareholder value. Therefore investing in peace should no longer be the realm of business philanthropists but instead businesses that can profit from peace.
