Germany has been warned that its plan to curb co-operation between investors could outlaw activism, end responsible share ownership and undermine confidence.

The International Corporate Governance Network, whose 40 members manage more than $15,000bn in assets, has written to Peer Steinbruck, finance minister, voicing concern at rules to be published this month designed to stop shareholders working together.

Peter Montagnon, chairman of the ICGN, said: "If this law is passed, it is not likely to add to confidence in the German market".

Berlin is planning legislation aimed at boosting transparency that would broaden the definition of "acting in concert".

Investors co-operating to exert control over a company are deemed to be acting in concert.

Under the new rules, investors consulting each other on corporate governance and how to vote at annual meetings would be deemed to be acting in concert.

If these investors collectively own more than 30 per cent of a company, they must launch a takeover bid.

The proposals come two years after a group of hedge funds, including The Children's Investment Fund, took stakes in Deutsche Börse and forced out its chief executive, causing outrage in Germany.

There has been a rise in activism across Europe by hedge funds and long-term investment groups.

Mr Montagnon said: "The ICGN agrees that companies need to know when shareholders are acting together to bring about a change of control. But we believe that can be achieved without introducing rules that also capture the activities of responsible share-ownership, such as voting. We have therefore asked for a review of the proposed law."

The ICGN's letter follows a letter sent by Hermes, which manages the UK's largest pension fund.

Hermes said the planned changes to the law would lead to "a significant weakening" of corporate governance standards and would be "counterproductive".

Shareholders argue that the German government's actions run counter to the principles for responsible investment, espoused by both the ICGN and the United Nations, which argue shareholders should be "active" in voting and engaging with companies on good governance. Shareholders argue that co-operation enables them to present a clear, constructive consensus on issues, such as board structure and performance. Putting a stop to these discussions could directly impact on returns.

The Association of British Insurers, which represents a fifth of UK shareholders, has written to Mr Steinbruck expressing concern.

"We regard engagement [with companies as] a matter of building long-term value that is in the interests of all shareholders. The key issue of acting in concert is a problem when small groups try to force a change of control behind the scenes. But that is different."

The bill would toughen disclosure rules on stake-building and could force investors who buy shares on the same day to make mandatory offers. It could also open up companies to lawsuits from shareholders protesting against decisions taken at annual meetings.