The equity risk is concentrated in the following areas:
Analysis of the equity risk is presented in section 7.1.6 “Management of financial risk on EDF SA’s dedicated asset portfolio”.
Assets covering EDF’s employee benefit liabilities are partly invested on the international and European equities markets. Market trends therefore affect the value of these assets, and a downturn in equity prices would lead to a rise in balance sheetprovisions.
34% of the assets covering EDF’s employee benefit obligations were invested inequities at 31 December 2020, representing an amount of €4.5 billion of equities.
At 31 December 2020, the two pension funds sponsored by EDF Energy (EDF EnergyPension Scheme and EDF Energy Group Electricity Supply Pension Scheme) were invested to the extent of 7.9% in equities and 9.1% in equities and equity funds, representing an amount of £217 million of equities.
At 31 December 2020, the British Energy pension funds were invested to the extent of 11.5% in equities and equity funds, representing an amount of £881 million of equities.
CENG is exposed to equity risks in the management of its funds established to cover nuclear decommissioning expenses.
Dedicated assets have been built up progressively by EDF since 1999 for secure financing of its long-term nuclear obligations. The Law of 28 June 2006 and its implementing regulations defined provisions not related to the operating cycle, which must therefore be covered by dedicated assets; they are listed in note 15.1.2 to the 2020 consolidated financial statements, “EDF’s dedicated assets”.
The dedicated asset portfolio is managed under the supervision of the Board of Directors and its advisory committees (Nuclear Commitments Monitoring Committee (CSEN), Audit Committee).
A Nuclear Commitments Financial Expertise Committee (CEFEN) exists to assist the Company and its governance bodies on questions of matching assets and liabilities and asset management. The members of this Committee are independent ofEDF.
The governance principles setting forth the structure of dedicated assets, and the relevant decision-making and control processes for their management, are validated by EDF’s Board of Directors. These principles also lay down rules for the asset portfolio’s structure, selection of financial managers, and the legal, accounting and tax structure of the funds.
Strategic asset allocation is based on asset/liability reviews carried out to define the most appropriate target portfolio for financing long-term nuclear expenses. Strategical location is validated by EDF’s Board of Directors and reviewed every three years unless circumstances require otherwise. A new strategic allocation was validated in 2018. This target allocation consists of a yield portfolio, a growth portfolio and a fixed-income portfolio, respectively accounting for 30%, 40% and 30% of the total portfolio. The yield portfolio consists of real estate assets and infrastructure assets; the growth portfolio consists of equities and equity funds (both listed and unlisted); the fixed-income portfolio consists of bonds, debt funds (both listed and unlisted),and cash. These portfolios are managed by the Listed Asset Management Division and by EDF Invest.
The “cash” pocket of the portfolio exists to provide secure coverage for future disbursements related to the purpose of the asset covered, and may be reinforced tactically, particularly when a conservative approach is required in the event of a market crisis.
The CSPE receivable allocated to dedicated assets on 13 February 2013 was totally repaid and cleared at 31 December 2020 (see note 15.1.2 to the 2020 consolidated financial statements).
Tactical management of the growth assets and fixed-income assets has several focal areas:
The allocation policy between growth assets and fixed-income assets was developed by the Operational Management Committee (1) on the basis of the economic and financial outlook for each market and geographical area, a review of market appreciation in different markets and market segments, and risk analyses produced by the CRFI Department.
31/12/2020 | 31/12/2019 | |
|---|---|---|
Yield assets | Yield assets 31/12/2020 19% | Yield assets 31/12/2019 19.2% |
Growth assets | Growth assets 31/12/2020 40.5% | Growth assets 31/12/2019 42,1% |
Fixed-income assets | Fixed-income assets 31/12/2020 40.5% | Fixed-income assets 31/12/2019 38.7% |
TOTAL | TOTAL 31/12/2020 100% | TOTAL 31/12/2019 100% |
At 31 December 2020, the total value of the portfolio was €33,848 million compared to €31,624 million in 2019. The content of the portfolio is also presented in note 15.1.2 to the 2020 consolidated financial statements.
(1) Internal Committee and permanent body for evaluation, consultation and operational decision-making in the area of dedicated asset management.
