When the Presbyterian Church’s General Assembly convenes in Detroit on June 14th, attendees will vote on a resolution to divest from Israel-related investments. If we can assume the goal of the Presbyterian Church is to promote peace between Israelis and Palestinians, attendees should consider a better alternative: rather than divesting from Israel, they should invest in ways that can improve the situation.

While divestment has historically been used by socially responsible investors, it is not effective in promoting compromise by two parties.  Instead, a popular new approach called ‘impact investing’ holds much more promise.  Impact investors see a challenge in the world, such as climate change or poverty, and proactively pursue investments that attempt to remedy the problem, for example clean energy or microfinance.

The Israeli-Palestinian conflict is an enormous challenge, but so far investors have had very little positive impact on efforts to reach a peaceful solution.  The divestment resolutions sponsored by the BDS (Boycott, Divest, Sanction) campaign, a modern offshoot of the Arab Boycott of Israel, damage any real prospects for peace.  This one-sided approach targets Israel alone, despite the fact that both sides play a role in the prolonged conflict.  BDS does nothing but exacerbate tensions, and creates a new avenue for non-military warfare between the parties instead of creating new avenues for cooperation.

Many BDS proponents are not peace activists seeking a negotiated agreement, but rather anti-Israel activists seeking the elimination of the Jewish homeland.  Unfortunately some investors who genuinely want peace have become beguiled by the BDS campaign’s rhetoric.

Impact investing won’t satisfy those who seek Israel’s destruction, but for the subset truly seeking peace, impact investing is a more effective strategy.  Investors can help lay the foundation for a sustainable peace and improve the environment for a negotiated political agreement.  The private sector, with initiatives such as Breaking the Impasse, Beyond Aid and the Center for Jewish-Arab Economic Development, realizes that Israelis and Palestinians have much more to gain from cooperation than from confrontation.

At present there is a great disparity between the Israeli and Palestinian economies, with Palestinians facing 25 percent unemployment and a slowdown in growth as a result of a decline in international aid.  Prospects for peace only will advance to the extent that investors can help grow the Palestinian economy and expand the middle class.

The Portland Trust, a British nonprofit, has researched conflict regions around the world to examine the positive impact provided by business and investment.  They concluded that in Northern Ireland “economic discussions became a platform for political settlement and business organizations became a key lobby for peace.”  However, in the example of Bosnia and Herzegovina “economic disparities and poor financial prospects endanger a fragile peace accord” and therefore “a strong post-conflict economy is essential for keeping the peace.”  Similarly, the substantially weaker Palestinian economy hurts the Palestinian people, leads to despair and radicalization and threatens any future peace deal.

Impact investing creates jobs and strengthens the economic foundation of a future Palestinian state. And there are readily available options across asset classes for investors to consider.

On the private equity side, recently launched Palestinian funds include Siraj, Sadara and Abraaj.  New initiatives such as the first eZone business incubator in Ramallah, the Arabreneur angel investor event, and the Palestine StartUp Cup all encourage entrepreneurship.

For public equity investors, the small Palestinian equity market and stock exchange is gaining global credibility, according to Sahem Trading, a Palestinian investment research firm in Ramallah.  While there are no Palestinian mutual funds currently, the Rasmala Palestine Equity Fund will launch soon and invest in both public and near-IPO equities.

Rawabi, the first Palestinian planned city, is a green real estate investment and an example of Palestinian-Israeli cooperation. There are many more options available and a number in development, including a fund for Palestinian women entrepreneurs, crowd-funding platforms, exchange-traded funds, and solar energy financing.

With the recent growth in Palestinian investment options, investors can help build an economic environment conducive to peace.  However, some investors still may be uncomfortable with any investment related to conflict or human rights concerns. To stay true to their values, investors divesting from Israel should also avoid Russia, China, Iran, Turkey, the United States, as well as the entire Middle East and most of Africa.  For investors who realize the impracticality of negatively screening the overwhelming majority of companies and countries, impact investing in peace offers a more strategic option.

Strengthening the Palestinian economy and encouraging economic cooperation between Israelis and Palestinians can help lay the necessary foundation for peace to ensue.

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