While every financial plan and individual is unique, the core basis of how financial plans work is fairly similar. The good news is that there’s only a handful of data points that will really impact your financial plan, however that is also the bad news, because there’s only a few data points that will truly impact your financial plan.

Your Life Expectancy

How long you live is likely the most impactful data point in your financial plan. After all, what you’re planning for is to not run out of money after you retire, so you need to anticipate how long that period after retirement until the end of your life will last. In general, the population is living longer and this can have an impact on your finances as you may have to plan for a longer lifespan. While your life expectancy isn’t entirely under your control, you can take steps to live healthy lifestyle.

Your Spending

Your expenditures clearly impact your financial plan – if you imagine a group of ten individuals with the same income level and same assets, they’d likely all have different expenditures and would likely all have different success rates in retirement. When you’re thinking about how much money you’ll truly need to retire, that answer depends on how much you’ll planning on spending during retirement – if you’re a low spender, obviously you won’t need as much as someone who is used to spending more in their lifestyle. You’ll also need to account for unknown expenditures, such as healthcare and potential long-term care in retirement, when thinking about your potential expenses. The good news here is that your spending is an area within your control, but it can be difficult.

Your Saving

On the flip side of spending is saving, and your ability to save absolutely impacts your financial plan. The people who prioritize saving generally have an easier time hitting their retirement goals, and the sooner you start the easier it may be to get there.

Minor Factors

While your life expectancy, spending and saving are the main factors that can impact your financial plan, there are several minor factors at play that can influence your plan. Inflation can certainly influence your plan, and this is out of your control. How your investments are structured, by your risk tolerance, may impact your financial plan, and this not only impacts your plan but is within your control. How much money you earn throughout your life impacts your plan, as it obviously allows for you to save more (but potentially also spend more) as you increase your earning potential.

While you can’t control everything that impacts your financial plan, there’s a lot than you can control, and much of it you can get help with through a professional such as a financial advisor.

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Confusion has reigned since the EU’s “Sustainable Finance Disclosure Regulation (SFDR)” legislation went into force in March 2021. SFDR had highly ambitious objectives—not only preventing fund “greenwashing” but also shifting capital in support of the EU’s “Green Deal” to become carbon neutral by 2050. Three years later, it is worth asking whether SFDR has achieved those objectives. Or whether it has simply become a complex and ever-changing labeling exercise.

As a starting point, it is still unclear exactly how to categorize a sustainable fund under SFDR. There has been much discussion about what exactly constitutes an Article 8 fund (so-called “light green” since they “promote environmental or social characteristics”) and an Article 9 fund (“dark green” since it goes further and “has sustainable investment as its objective”). The language here is highly ambiguous, particularly since the term “sustainable investment” is used to cover both types of funds, as discussed below. This has created a bonanza for lawyers hired by fund managers to help them substantiate how they are categorizing their funds.

The lack of clarity has created significant confusion in the market. Fund managers have “downgraded” Article 9 funds to Article 8. They have “upgraded” Article 6 funds, which are not claiming any sustainability benefits but still have to report on sustainability risks, to Article 8 and even Article 9. According to Morningstar, in the past quarter 220 funds changed their classification, 190 of these being Article 6 to Article 8.

Very sensibly, on September 14, 2023 Mairead McGuinness, Commissioner for Financial Services, Financial Stability and Capital Markets Union announced “an in-depth three month consultation for stakeholders” to determine “if our rules meet their needs and expectations, and if it is fit for purpose.”

On May 3, 2024 the EU published a Summary Report of this Consultation. It found “Widespread support for the broad objectives of the SFDR but divided opinions regarding the extent to which the regulation has achieved these objectives during its first years of implementation.” Here are some of the key findings:

· “89% of respondents consider that the objective to strengthen transparency through sustainability-related disclosures in the financial services sector is still relevant today.”

· “94% of respondents agree that opting for a disclosure framework at the EU level is more effective than national measures at Member State level.”

· “77% of respondents also highlighted key limitations of the framework such as lack of legal clarity regarding key concepts, limited relevance of certain disclosure requirements and issues linked to data availability.”

· 84% felt “ that the disclosures required by the SFDR are not sufficiently useful to investors.”

· 58% don’t feel the costs “to be proportionate to the benefits generated.”

· 82% felt “that some of its requirements and concepts, such as ‘sustainable investment ’are not sufficiently clear.”

It also found that 83% of respondents felt that “the SFDR is currently not being used solely as a disclosure framework as intended, but is also being used as a labelling and marketing tool (in particular Article 8 and 9).” That said, there was no consensus on whether to split the categories in a different way than Articles 8 and 9 or to convert them into formal product categories by clarifying and adding criteria to the underlying concepts.

While the Consultation was clearly useful, it is telling that there is no clear path forward. It is also telling that there is substantial tension around the issue of transparency. The Consultation found strong support for it but that the current amount was insufficient, yet what there is has a questionable cost/benefit ratio. Squaring that circle will be hard, especially since transparency is seen as the key driver of capital allocation. The brutal fact of the matter is that this complex legislation has been overly ambitious in terms of allocating capital. It is time for some soul searching. Among other things, this involves addressing three underlying fundamental issues: (1) the purpose of the legislation, (2) the impacts it is intended to achieve, and (3) how it addresses the need for financial returns.

In terms of purpose, the original legislation is clearly aimed at using fund disclosure as a lever to reallocate capital to address important environmental and social issues. Here the legislative text states, “As the Union is increasingly faced with the catastrophic and unpredictable consequences of climate change, resource depletion and other sustainability‐related issues, urgent action is needed to mobilise capital not only through public policies but also by the financial services sector. Therefore, financial market participants and financial advisers should be required to disclose specific information regarding their approaches to the integration of sustainability risks and the consideration of adverse sustainability impacts.”

The language here is telling in the word “impact(s).” It appears 39 times in the 16-page directive. At the same time, the term sustainability risk(s) appears 33 times. “A sustainability risk means an environmental, social or governance event or condition that, if it occurs, could cause a negative material impact on the value of the investment.” There is a fundamental tension here that is not addressed since these are independent variables. A company can be doing a good job of managing its sustainability risks for shareholder value creation, now called “single” or “financial” materiality, while still creating negative impacts on the world, or “impact” materiality. The two combined, as is the case with the European Sinancial Reporting Standards (ESRS) developed by the Sustainability Reporting Board (SRB) of the European Financial Reporting Advisory Group (EFRAG) for the Corporate Sustainability Reporting Directive (CSRD), are “double materiality.” As with the CSRD, the EU is expecting a great deal from reporting.

This begs the question of what is a “sustainable investment?,” as noted above. The term is used 11 times in the directive. It is only defined on the eighth time, halfway through on p. 8:

“‘’sustainable investment’ means an investment in an economic activity that contributes to an environmental objective, as measured, for example, by key resource efficiency indicators on the use of energy, renewable energy, raw materials, water and land, on the production of waste, and greenhouse gas emissions, or on its impact on biodiversity and the circular economy, or an investment in an economic activity that contributes to a social objective, in particular an investment that contributes to tackling inequality or that fosters social cohesion, social integration and labour relations, or an investment in human capital or economically or socially disadvantaged communities, provided that such investments do not significantly harm any of those objectives and that the investee companies follow good governance practices, in particular with respect to sound management structures, employee relations, remuneration of staff and tax compliance.”

This definition makes clear that SFDR is primarily aimed at directing capital to address environmental and social issues, and many are named.

At the same time, there is an added layer—not only must these investments create positive impact, but they must also “not significantly harm any of those [environmental or social] objectives.” This ignores the fact that every company, no matter how well intended, produces negative externalities even when it is diligently operating according to existing laws and regulations. It’s a kind of “have your cake and eat it too” desire. Thrown in at the end is a caveat about good governance which is mentioned three times but never defined. I suspect that most boards of directors, even in Europe, would consider shareholder value creation at the core of good governance. The essence of the message from SFDR is that fund managers should invest in companies that do good, don’t do bad, and have good corporate governance.

The essential question, then, is whether SFDR has had any real world impact. Has there been a massive reallocation of capital in line with SFDR’s very laudable policy objectives? Although Article 8 funds now account for 55% of European fund assets, Article 9 funds only account for 3.4%. It is safe to say that the increase of Article 8 fund assets has not driven a massive shift in corporate activity to meet the EU’s environmental and social sustainability goals. So is it fair to say that SFDR has not achieved the real world impact that the legislation originally intended? In fact, it’s unclear whether there have been any efforts to actually assess whether SFDR has met the EU’s policy objectives of capital reallocation in service of achieving a more sustainable economy. As the EU revisits SFDR, it will be important to be clear about how to assess the success of any policy objective and what data would be used to measure this.

There is also the important question of how financial returns fit into the SFDR. The answer is “not much.” The term is used exactly one time: “In order to comply with their duties under those rules, financial market participants and financial advisers should integrate in their processes, including in their due diligence processes, and should assess on a continuous basis not only all relevant financial risks but also including all relevant sustainability risks that might have a relevant material negative impact on the financial return of an investment or advice.” So financial return is only discussed in the context of single materiality and completely ignored in the context of impact materiality. It’s as if the legislation assumes no tradeoffs exist. Similarly, the term “value creation” is never used. “Value” is used three times. Twice about sustainability risks and once about insurance products.

So what should be done? Easy to say but hard to do given the political and economic capital that has been invested in the SFDR. The EU needs to carefully consider what the policy objective of the legislation is, ensure the intended impact is something that is actually achievable through fund disclosure, carefully tailor the legislation to achieve those intended impacts, consider the cost-benefit ratio, and determine how they will measure and assess whether it’s achieving the intended impact. There’s also the important missing piece of returns. Whatever politicians wish capital would do, what it does do is go to where there is the right risk-adjusted return.

Oh, and while disclosure is very important, it’s equally important to not expect too much from it alone.

New Technology, Ideas, and Strategies Shared at Perform24 Support Finance, Accounting, Marketing, and HR Leaders Go Beyond to Drive Peak Financial Performance

SAN FRANCISCO, May 15, 2024 /PRNewswire/ — Planful Inc., the pioneer of financial performance management cloud software, announced today, as part of the Perform24 theme to “Go Beyond,” an array of product advancements tied to three key pillars: Automate, Collaborate, and Innovate. The company unveiled the future of Planful AI, new Planful for Workforce and Planful for Marketing capabilities, connectors with Snowflake and Microsoft Power BI, and more. The company also debuted the Solution Hub, an all-new searchable collection of pre-built solutions, open for anyone to explore, and for customers to configure. With these advancements, Planful is bringing increased value to large and fast-growing organizations and supporting their business leaders in driving peak financial performance.

“Achieving successful financial performance management requires a highly-collaborative effort and organizations who treat it as a team sport will thrive and outperform their competitors,” said Steve Welsh, Chief Product Officer, Planful. “Planful’s purpose-built product delivery and vision is an intentional result of working with our customers to make that team effort easier, faster, and more connected by unlocking the data teams need to make confident decisions.”

Innovate: The Future of Planful AI

The company announced the extended vision for Planful AI and significant investments that will bring its first generative AI experience to customers later this year. Finance and business leaders will have access to a unified suite of Planful AI solutions that include:

• Operational automation that anticipates tasks and processes, recommends next steps, and gathers insights into how a process is running and if a reminder is needed to complete data inputs for a forecast
• Analytics and decision support for both simple and complex, time-consuming scenario analysis that anticipates tasks to uncover variances and the meaning behind the numbers, while also suggesting next steps to further the analysis when business leaders are evaluating key business decisions

These new generative AI capabilities will complement the company’s existing, industry-leading Planful Predict AI/ML suite of solutions, which have been foundational in automating forecasting, error detection, and manual processes for businesses worldwide.

Collaborate: New Capabilities for Planning as a Team Sport 

At Perform24 the company introduced new solution advancements, including Planful for Workforce capabilities and Planful for Marketing features, that improve business outcomes by facilitating collaboration and unlocking access to data across teams.

The new Planful for Workforce capabilities announced at Perform will enable Finance and People leaders to collaborate directly in the platform to generate actionable insights. These capabilities include advanced analytics, actuals data loading at the most granular level, multi-currency capabilities for employee and compensation item planning, and more. With almost 90% of Planful customers using Planful for Workforce, users will be able to leverage their existing data to rapidly conduct complex scenario analysis in managing their most valuable asset–people.

The latest Planful for Marketing advancements include a new integration with Coupa; further reporting enhancements, including custom fields and attributes; and new forecasting capabilities.

Automate: Frictionless Access to Data

Planful introduced several new connectors that will further support customers with their overall data strategy. A new connector with Snowflake, a data-cloud company, enables governed access to limitless volumes of financial performance and other business data. This integration will meet the growing need of enterprises to share data, build AI/ML applications, and power business growth using a modern data infrastructure. It will also reduce friction, speed data access, and enable highly-complex financial modeling and calculations. The new connector with Microsoft Power BI, an interactive data visualization software product, accommodates the consumption of Planful data to augment with other data sources natively in Power BI.

Protective Industrial Products, a global leader in personal protective equipment that offers an extensive range of over 20,000 products, leverages the Planful platform for agile and efficient planning as it continues to expand its market reach and diversify its offerings through many strategic acquisitions. “Planful’s automation capabilities have greatly streamlined our acquisition processes,” said Mark Smith, Director, Corporate FP&A at Protective Industrial Products, and a speaker at Planful Perform24. “Planful has become a must-have tool for our team and we integrate it into each of our newly acquired entities. Its automation capabilities not only help to simplify acquisition processes, but also enhance our consolidation and workforce planning in a very dynamic M&A environment.”

New Early Adopter Program

Customers can now join an early adopter program with Planful to gain access to a range of unreleased product advancements and find opportunities to co-innovate and trial Planful AI. With this new program, Planful continues to prioritize product development that is closely attuned to practical customer needs and top feedback.

Watch Perform24 live today or on demand later this week to hear what Planful customers and industry thought leaders are saying about driving peak financial performance.

About Planful

Planful is the pioneer of financial performance management cloud software. The Planful platform, which helps businesses drive peak financial performance, is used around the globe to streamline business-wide planning, budgeting, consolidations, reporting, and analytics. Planful empowers finance, accounting, and business users to plan confidently, close faster, and report accurately. More than 1,400 customers, including 23andMe, Bose, Boston Red Sox, Five Guys, and Zappos, rely on Planful to accelerate cycle times, increase productivity, and improve accuracy. Planful is a private company backed by Vector Capital, a leading global private equity firm. Learn more at planful.com.

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SOURCE Planful, Inc.