Climate finance is urgently needed in fragile and conflict-affected settings (FCAS), yet conventional approaches to financing are keeping investments away from the most vulnerable communities. Bankability – whether a project is profitable for an investor – must be redefined to recognise how peace, stability and durable adaptation help secure financial returns and create climate, economic and social value.
To reduce risks for investors and create the conditions for lasting results for the climate, communities and investors, climate investments should be locally led, conflict sensitive and ultimately strive to positively impact the conditions for peace. By taking this approach, climate finance can strengthen local ownership, as well as inclusive and accountable governance, underpinning the sustainability of investment returns.
Standard climate finance logic does not work in fragile and conflict affected countries
Mainstream climate finance discussions focus on the bankability of (private) investments. Yet standard climate investment requirements and financing models are difficult to apply in places affected by conflict, weak governance and social instability. As a result, investments in FCAS are often simply not happening. Funders rather direct adaptation funds to more stable environments.
Fragile contexts have urgent adaptation needs but the ten most fragile states received less than 1% of the total global adaptation finance. Investments that improve food security or build early warning systems may not generate an immediate, direct cash return for investors, in the way that mitigation projects, such as wind parks, can, but they are investments in sustainable, public goods.
We should therefore redefine what “bankable” means, to reflect that returns can also be measured in social impact. Adaptation investments can and should support creating an enabling environment for economic and social stability as a means to prevent future losses and achieve adaptation goals. Social stability should be considered part of the value created through climate action. A cornerstone to achieve this in fragile contexts is conflict sensitivity.
Climate finance can strengthen local ownership, as well as inclusive and accountable governance, underpinning the sustainability of investment returns.
Risk reduction through conflict sensitivity
A conflict sensitive approach helps to develop project pipelines fit for local contexts, to identify risks early so that potential tensions, for example over project finance decisions or unequal impacts, can be mitigated. Existing Environmental Social and Governance (ESG) standards for climate finance are not enough for FCAS. They do not consider questions of societal make-up and political economy, for instance, how certain groups may dominate, or others may have been historically excluded from access to resources. Nor do the standards account for enabling factors that can support the effective delivery of climate projects.
A conflict assessment, for example, analyses the factors driving conflict as well as those actors and factors that can positively support stability, linking these directly to the climate investment and the stakeholders involved in its delivery. It can help to inform project design and reduce risks of elite capture, as well as capitalise on existing local capacities and networks. This is not only ethically desirable; conflict sensitivity is practical risk management that reduces implementation delays, damage to assets and materials, community opposition, capture of benefits by powerful groups, and reputational risk.
Stronger long-term results through peace-positive climate investments
Moving beyond conflict sensitivity in the future, the climate finance sector should invest in peace-positive programmes that intentionally support climate and social (peace) outcomes together. This means stronger climate portfolios by deliberately designing and investing in projects to improve cooperation, reduce socio-economic inequality, include all affected groups and strengthen transparent and fair governance. For example, a project on sustainable use of water that also works on fair access for marginalised communities who compete over water, can reduce disruption and foster social stability.
This is especially important in FCAS, where climate stress and conflict drivers like inequality and poor governance mutually reinforce one another. Climate hazards exacerbate conflict and conflict weakens institutions, degrading local capacity to implement climate solutions and undermining the long-term effectiveness of climate investments.
Taking a proactive peace-positive approach involves activities like dialogue and equitable governance mechanisms in climate action. By doing this, programmes can contribute to stability and equality and create enabling conditions for local economic activity which help to protect the value of and return on investments in the long run.
A 2026 World Bank report and evidence from the practice of International Alert, GPPAC, Mercy Corps, the UNEP-EU partnership and others illustrate that integrating climate and peacebuilding works. What vulnerable communities need is for these proven solutions to be delivered at greater scale.
Integrating climate and peacebuilding works. What vulnerable communities need is for these proven solutions to be delivered at greater scale.
Rethinking ownership and inclusion to make peace-positive climate finance work
Local actors, from community representatives to youth and women’s groups, cooperatives, local finance institutions and authorities, have an untapped potential to identify financing needs, formulate solutions, and lead integrated responses to provide equitable benefits in hard-to-reach areas. Local civil society actors also know how to navigate the local political economy and conflict dynamics to reduce risks and can lead peace activities.
But the state-centric climate financing system relies on national governments, assuming that funding decisions represent the populations’ priorities. Yet vulnerable groups, and especially communities in areas outside of government control, are rarely consulted in funding decisions, and finance access barriers prevent them from directly receiving support.
Progress towards locally led climate adaptation has been made, for example with GCF ‘s Locally Led Climate Action and the Adaptation Fund’s Locally Led Adaptation approach. In some countries, mechanisms for participation exist but barriers to meaningful and equitable inclusion in decision-making and budgeting persist. It requires a systemic and attitude shift to build in structures and mechanisms, such as participatory analysis, consultations, and validation instruments, from pipeline development to programme delivery and monitoring.
Recommendations
Some climate finance institutions and development banks have begun to recognize fragility and conflict more explicitly, but the systems, portfolios and funding models are not yet peace-positive. So, climate (finance) actors should:
- Design climate action to meet local realities of vulnerable communities, including by adapting risk approaches, funding windows and finance access requirements – and do not treat fragile contexts as “unbankable” investment environments.
- Provide resources and support for local actors to meaningfully shape, implement and monitor investment decision-making, climate portfolios and projects.
- Require and fund conflict sensitive approaches throughout pipeline identification and development, project design, implementation and monitoring.
- Invest to create peace-positive outcomes for climate programmes by budgeting for activities that improve cooperation, equitable access, inclusive governance and accountability.
- Work with government shareholders and recipient countries as well as across sectors, for example with peacebuilders, to embed conflict sensitivity and peace co-benefits in climate finance strategies, policies and investment priorities.
