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How can investors manage the risks of violent conflict?

Few if any companies have mechanisms in place to manage the specific risks associated with violent conflict, presenting huge risks for their investors

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On 9 March, H&M’s 56 production locations in Myanmar were closed after a military coup brought violent turmoil to the country. Only weeks later, Total abandoned Mozambique as rebel forces were approaching its $20bn investment in Cabo Delgado, most likely delaying plans by energy majors to spend as much as $120bn on Mozambique’s natural gas industry and jeopardising the very viability of Africa’s largest-ever private investment. The coup and the rebellion do not only affect the bottom lines of dozens of listed corporations, they also expose them to tremendous reputational and human rights risks.

A surprisingly high number of listed companies are active in conflict-affected areas. Their investors run a heightened risk of being directly linked to severe adverse human rights and environmental impacts. Recently, the UN Working Group on Business and Human Rights recommended that companies with activities in conflict-affected areas should complement their due diligence with specific additional measures if they are to avoid potential adverse impacts. Still, few if any companies have mechanisms in place to manage the specific risks associated with violent conflict.

Last year, Achmea Investment Management and Dutch peace organisation PAX - both active in the Dutch IRBC Agreement for the Pension Sector - worked with the Social and Economic Council of the Netherlands to develop investor guidance on navigating conflict-related human rights risks. The results, launched this week, can be found here). In practice, investors need to undertake solid conflict analysis of their portfolio and investment pipeline, understand the risk profiles associated with ongoing or potential conflicts in areas and sectors in which they invest, and expect investee companies to adequately manage associated heightened risk. They must also understand that there are circumstances in which it is inevitable that a company’s activity may directly or indirectly affect the situation in a conflict-plagued area.

According to OECD Guidelines and the UN Guiding Principles on Business and Human Rights, it is the responsibility of institutional investors to identify the human and environmental risks of their investments and use their influence to prevent and mitigate those risks and potential adverse impacts. Conflict-affected areas present substantially heightened risks and therefore require heightened due diligence.

Most of the time, investors would be directly linked to adverse impacts of investee companies and are expected to use their leverage to encourage them to mitigate these and provide access to remedy for victims. In exceptional cases, a situation may arise in which investors contribute to an adverse impact through their investments and share a responsibility to contribute to remediation - for example if they directly own a significant stake in the company or have provided project finance. 

Investors must understand that there are circumstances in which it is inevitable that a company’s activity may directly or indirectly affect the situation in a conflict-plagued area

It is important to note that companies operating in conflict affected areas do not necessarily contribute to malpractices. A company may, for example, supply medicines or food, and ceasing its activities can have detrimental impacts. However, even if a company provides services or products that do not immediately appear to be directly linked to the conflict, its mere presence may influence it. 

In order to prevent and mitigate adverse impacts investors can be expected to take three steps:

1. Develop clear policies

Firstly, define what conflict-affected areas are, using OECD or EU definitions, for example. Secondly, identify investee companies that run heightened risks, such as those with a footprint in conflict-affected areas, those lagging behind on human rights conduct or those active in high risk sectors like arms, raw materials extraction or surveillance equipment. And thirdly, define the expectations from investee companies, using the tools and guidelines available for companies operating in conflict-affected areas to help inform investor expectations (for example here).

2. Conduct Responsible Business Conduct (RBC) due diligence

Institutional investors are expected to implement an RBC due diligence process for their entire investment portfolio. Investors can give priority to addressing the most salient issues that they have identified. Some of the most salient adverse impacts to people and planet occur in situations of violent conflict.

Enhanced due diligence by investors starts with an assessment of the adequacy of an investee company’s own enhanced due diligence process, which should include: 

  • a conflict analysis and identification of conflict drivers; 

  • an assessment of the impacts of the activities on the conflict; 

  • commensurate efforts to prevent and mitigate risks adverse impacts; 

  • regular evaluations of their effectiveness; and 

  • a mechanism to ensure the right to remedy. 

If the due diligence of an investee company is found to be inadequate and individual engagement is not found to be effective, the investor should consider the following steps to increase its leverage:

  • Make informed voting decisions based on the engagement outcomes

  • File or co-file resolutions (contacting other investors may increase leverage).

  • Consider excluding specific risk sectors and companies.

3. Be transparent

In terms of credibility, reputation management and effectiveness, it is crucial that both investee companies and investors are transparent about their policies on conflict areas, including the steps they take in their due diligence to address (potential) adverse impacts, their engagements and the outcomes of their policies. The Principles for Responsible Investment and the UN Guiding Principles Reporting Framework offer suitable guidelines to investors for their due diligence disclosure.

With the number of violent conflicts in the world increasing and driving many of the worst human rights violations across the globe, now is the time for investors to develop a proactive rather than reactive approach to analysing, preventing and mitigating the associated risks. 


PAX and Achmea will be speaking at RI Netherlands on 15 April at 11.10 CET on how investors can navigate the ESG challenges presented in conflict-affected countries. Register for a case study session on the investor-NGO collaboration here.


Thijs van Brussel is a Program Leader for Natural Resources, Conflict & Human Rights at PAX  



Egbert Wesselink is a Senior Advisor at PAX



Martijn Huijnen is a Senior Policy Advisor for International Responsible Business Conduct Agreements at SER 



Frank Wagemans is a Senior Engagement Specialist at Achmea Investment Management



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