German Socially Responsible Investment: Barriers and Opportunities

Abstract

In socially responsible investment terms, Germany is a contradiction. The country is considered by many as one of the pioneers of post-war environmentalism and social reform. Yet, German financial institutions are amongst the European laggards in adopting environmentally and socially informed approaches to investment. This article identifies a variety of legal, institutional and attitudinal factors which hinder the growth of the German SRI market. Its paltry size does not reflect evidence of any specific disinterest among German investors in social and environmental issues. Rather, it arises from a combination of structural impediments, particularly the institutional arrangements for German pension schemes that hinder their participation in financial markets, regulations which encourage conservative investments, and investors' preference for low-risk assets and avoidance of shareholder activism. Legal and institutional reforms over the past decade have in theory created better opportunities for SRI in Germany, although they have yet to engender significant changes in the market.

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