The OECD’s recent State of Fragility 2025 report found that two billion people, equal to 25% of the world’s population, and 72% of the world’s extreme poor, live in contexts with high and extreme fragility. The International Committee of the Red Cross (ICRC) says there are around 130 armed conflicts active across the world today, double the number just 15 years ago, and, according to the Global Peace Index, the most since World War II. As the world becomes increasingly volatile and rising numbers of people see their lives and livelihoods upturned, should impact investors be paying closer attention to investing into fragile and conflict-affected regions?

David Nyheim, CEO and chairman of International Conflict and Security Consulting (INCAS), a consultancy working with the private and public sectors – including development finance institutions – to reduce risk to business operations and investments in conflict-affected regions of the world, certainly thinks so.

“Impact investors should go where the needs are the greatest. It is in fragile and conflict -affected areas, that you’ll find the highest degrees of poverty, displacement and human rights violations. These are the places where you can make the most significant difference but they are also some of the hardest from a risk perspective,” he says.

Juan Luis Coderque Galligo, the former head of new financing models for the ICRC, who works as a senior adviser to the Humanitarian Innovative Finance Hub (HIFHUB), an initiative launched by the Danish Red Cross to help members of the International Red Cross and Red Crescent Movement develop innovative finance models to strengthen their humanitarian action across to the globe, agrees.

“We live in a world where every week we hear about the humanitarian cost of one or another armed conflict,” he says, while highlighting the recent decline in overseas development aid, that comes at a time as humanitarian needs are escalating.

“There is an increased interest in more innovative finance models that can help address the ever growing gap between needs and available resources, but finding solutions continues to be slow and will take time,” he says, adding that when he started working in the space over a decade ago, grant-funding was already struggling to address the humanitarian needs of people caught in conflict.

“Today, the situation is even more critical and there is no alternative than to develop approaches that bring together humanitarian actors with host governments, development actors, and the private sector to develop collaborative responses to these situations,” he adds.

He describes this approach as humanitarian blended finance, where humanitarian actors take a catalytic role through grant funding to enable the mobilisation of both public and private capital.

Several years ago, the ICRC launched the Goma West Resilient Water Project in the DRC, to bring clean water to 330,000 city residents by 2026.  The aim of the project, which laid the ground for the construction of a drinking water supply system funded by the World Bank, the Swiss Agency for Development and Cooperation, the Swedish International Development Cooperation Agency and the Fondation Lombard Odier in the midst of a protracted conflict, was to shift from short term interventions by a range of uncoordinated actors to a comprehensive, long-term and more sustainable response.  

“Once the infrastructure is built, the aim is to move to a financially sustainable operating model in which consumers are paying for water, and in as much as is possible, with the inclusion of private operators,” he adds, explaining that critical to the success of the Goma West project and similar humanitarian blended finance instruments is the work conducted with local actors “from the bottom up”.   

Nyheim says the role of the local private sector is also critical in areas where the presence of government actors is marginal or non-existent.

“Private businesses can provide a range of services from energy, to water to agricultural services and food security. In these places if you want to make a difference you have to invest in the private sector,” he adds.

Olena Smyrnova, head of Ukraine for Swedish development finance institution (DFI) Swedfund, says the investment climate in any country or region is highly dependent on macroeconomic stability, political certainty, and predictability.

“In conflict-affected environments, these conditions are inherently challenged, which typically deters private investors,” she says, explaining that this makes the role of impact investors critical.

“By stepping in, they support economic resilience and [create a] foundation for recovery. Without such engagement, economic contraction deepens, recovery is delayed, and long-term development prospects deteriorate,” she adds.

Nyheim, whose experience of working with local communities in some of the most volatile regions of the world, says that building resilience in one place can also have a multiplier effect and that integral to this is how you ‘frame’ a country or region.

“Syria, for example, or Somalia, have been framed as countries at war. Both have tens or even hundreds of micro-conflicts taking place but what people don’t realise is that these are concentrated in specific areas with large swathes of both countries that are very peaceful,” he explains, arguing that there are many opportunities for investment in areas not directly affected by conflict.

“By investing in places that are peace-spots as opposed to hot-spots, you can also expand those areas, stabilise in increments and I think that’s something that we encourage our clients to be thinking about,” he says.

Thematically, Coderque Galligo see opportunities for impact investors in sectors such as water and sanitation, energy, digital services and livelihoods -particularly around inclusive finance and sustainable food production.

“There are major opportunities to generate impact and return in these largely underserved areas. Large-scale projects serving hundreds of thousands of people such as Goma West are able to create markets generating opportunities for investment into related companies, whether they’re local, regional or international” he says.

There are also myriad opportunities for investment that focus on the local private sector.

According to Coderque Galligo, there are about four million MSMEs in the DRC alone, of which at least 80% to 90% are informal businesses with limited or no access to finance and business resources.

“Many of these businesses are very small, often led by women and could grow with access to technical assistance, capacity building and crucially, to credit. There is a lot more that can be done from that angle of attack for these underserved populations, including for those living in refugee and internal displacement situations,” he says, explaining this involves working with local banks and microfinance institutions as well as with international DFIs.

Looking east towards Ukraine, Smyrnova says that significant damage to energy and logistics infrastructure since the Russian invasion has created strong demand for investment in these sectors.

“At the same time, supporting operating businesses is essential to preserve jobs and production,” she says, adding that there are also investment opportunities in support of businesses and populations that have been forced to relocate.

Nyheim says he has witnessed development finance in particular, ramping up investment in conflict-affected areas in recent years.

“These are tough places to invest and operate in but I think the outlook is one where you will see development finance learning to do this work better and then you will see more impact investment and blended finance follow suit,” he says.

Smyrnova agrees, saying that in Ukraine investment activity among institutions such as the European Bank for Reconstruction and Development and International Finance Corporation is increasing, alongside stronger engagement from bilateral DFIs, particularly Nordic ones.

“New structures – risk-sharing mechanisms supported by the EU – are emerging to help mobilize private capital,” she adds.

Coderque Galligo asserts he sees a growing role for humanitarian blended finance but concludes with a warning.

“If the public and private sectors do not collaborate and act collectively, then we’re all going to pay the price through increased instability and security risk,” he adds.