Financial Regulations in Transition Economies : A Comparison of Germany and the U.S.

Abstract

In order to determine how German ordoliberalism and its historical accounting system may be operating in Germany’s financial institutions, we analyze the Anglo-American and German approaches to sustainable finance in the transition economy. In order to compare the two systems, we scrutinize how sustainable finance has been institutionalized in the United States and Germany. We focus on how institutional disparities might result in diverse approaches to sustainable finance and how the processes of sustainable finance have developed. Contrary to capital investor-oriented accounting systems, the historical evolution of creditor-oriented accounting requirements suggests that German accounting regulation based on ordoliberal principles does not always evolve to support an improvement in capital market efficiency, for example, through detailed disclosures or a drift towards relevance- oriented valuation. Double materiality is a term that refers to the possibility that an organization’s impacts could indirectly affect their financial value and at the same time that a company’s impacts on environment in addition to its short-term financial performance. The German banking industry is working together to coordinate efforts and guarantee a science-based strategy to incorporate double materiality in firms’ disclosure requirements. The emphasis is on what banks can do to reduce the climate impact of their loan portfolios. This endeavor is guided by the idea of double materiality, or how the climate impacts the banks and how the banks impact the climate.