The investor toolkit on human rights and armed conflict addresses the pervasive risks that companies and investors face in conflict-affected areas. It highlights the need for investors to be aware of their legal obligations under international humanitarian law (IHL) and human rights law. The toolkit underscores that failure to manage these risks can lead to significant regulatory, financial, legal, and reputational damage.

For instance, conflicts in regions like Myanmar and the Russia-Ukraine war demonstrate the severe impacts on businesses, including heightened exposure to litigation and sanctions. Investors are advised to proactively engage with companies to identify and mitigate these risks, particularly through heightened human rights due diligence (HRDD).

Introduction

The intersection of armed conflict and responsible investment is becoming increasingly critical as conflicts continue to affect global markets. When companies are involved in conflict zones, they face increased risks of human rights violations, which can severely impact their financial performance. Investors are encouraged to integrate conflict-sensitive approaches into their investment strategies to avoid contributing to adverse human rights impacts.

How does armed conflict intersect with responsible investment?

Armed conflicts amplify human rights risks, making it essential for investors to consider these factors in their decision-making. The toolkit explains that adverse human rights impacts in conflict zones can lead to substantial regulatory, legal, and reputational risks for businesses. For example, Lafarge’s involvement in Syria resulted in a US$778 million fine for supporting terrorist organisations. Similarly, Lundin Oil executives face charges of aiding war crimes in Sudan, highlighting the severe legal consequences of failing to manage these risks. Investors are urged to implement proactive measures to manage these risks before conflicts escalate.

Why should investors care about armed conflict, IHRL and IHL?

Investors must recognise that conflicts increase the likelihood of human rights abuses and violations of IHL, which can translate into financial risks. The toolkit provides examples of companies facing severe penalties for their involvement in conflict zones, such as Volkswagen’s US$6.4 million settlement for complicity with Brazil’s military dictatorship. Investors are advised to align their portfolios with international standards, such as the UN Guiding Principles on Business and Human Rights, to mitigate these risks. The report emphasises that failing to manage these risks can erode a company’s value and damage investor returns.

Recommendations

The toolkit recommends that investors undertake heightened HRDD in conflict-affected areas. This process should involve identifying potential human rights risks and taking proactive steps to mitigate them. Investors should engage with companies to ensure they have robust policies in place to manage these risks. Additionally, investors are encouraged to use independent information sources to identify armed conflicts and assess the exposure of their portfolio companies. The toolkit also suggests that investors consider the long-term implications of conflicts on their investments and take a proactive approach to managing these risks.