Article L. 594 of France’s Environment Code and its implementing regulations require assets (dedicated assets) to be set aside for secure financing of nuclear plant decommissioning expenses and long-term storage expenses for radioactive waste. These regulations govern the way dedicated assets are built up, and the management and governance of the funds themselves. Dedicated assets are clearly identified and managed separately from the Company’s other financial assets and investments. They are also subject to specific monitoring and control by the Board of Directors and the administrative authorities.
The law requires the realisable value of dedicated assets to be higher than the value of the provisions corresponding to the present value of the long-term nuclear expenses defined in France’s Environment Code.
The Decree of 1 July 2020 codified the regulatory obligations concerning dedicated assets in Articles D. 594-1 to 18 of the Environment Code, complemented by the ministerial order of 21 March 2007 amended by the order of 1 July 2020. These documents define the list of eligible assets, which is largely based on France’s Insurance Code and includes unlisted assets subject to certain conditions. In particular, they authorise allocation to dedicated assets of the shares of CTE, which has held 100% of the capital of RTE since 31 December 2017 (see note 15.1.2.2 below).
EDF received ministerial authorisation on 31 May 2018 to increase the portion of unlisted assets in its dedicated assets from 10% to 15% subject to conditions (this does not apply to the shares of CTE or real estate assets).
Since the decree of 1 July 2020, apart from the obligation to allocate €797 million to dedicated assets in 2020 as a result of the previous regulations, which was confirmed to EDF by a letter from the administrative authority on 12 February 2020, EDF is no longer obliged to add to dedicated assets when the coverage rate of obligations, determined by the ratio of the assets’ realisable value to the amount of the provisions concerned, is above 100%, and withdrawals from assets are not authorised unless that rate is above 120%.
Given the regulations governing dedicated assets, they form a highly specific category of assets.
Dedicated assets are structured and managed according to a strategic allocation defined by the Board of Directors and reported to the administrative authorities. The strategic allocation is designed to meet the overall objective of long-term coverage of obligations, and determines the structure and management of the portfolio as a whole. It takes into account regulatory constraints concerning the nature and liquidity of the dedicated assets, the financial outlook for the equity and bond markets, and the diversifying contribution of unlisted assets.
Several changes have been made to this strategic allocation, in order to pursue the diversification into unlisted assets:
On 29 June 2018 the Board of Directors validated the principle of strategic allocation for dedicated assets:
These targets should be reached gradually by 2025.
Certain growth and fixed-income assets take the form of bonds held directly by EDF. Others consist of specialised collective investment funds on leading international markets, managed by independent asset management companies. They take the form of open-end funds and “reserved” funds located in France, established for the Company. The reserved funds are owned by EDF and are not consolidated as EDF does not participate in management of these funds and provides no financial support for them.
The value of the assets of the reserved investment funds amounts to €10,422 million at 31 December 2020 (€8,492 million at 31 December 2019). These funds mainly consist of 13 listed funds with total value of €9,742 million (at 31 December 2019, 12 listed funds with total value of €7,875 million).
The listed equity funds consist of international equities (mainly in North America but also in Europe, Asia-Pacific and emerging countries). Listed bonds and listed bond funds consist of sovereign and corporate bonds.
These investments are structured and managed in line with the strategic allocation, which takes into consideration international stock market cycles, for which the statistical inversion generally observed between equity market cycles and bond market cycles – as well as between geographical areas – has led the Group to define a long-term investment policy with appropriate allocation between growth assets and fixed-income assets.
Growth assets also include a small portion of funds invested in unlisted equities, and fixed-income assets also include a small portion of funds invested in unlisted debt. These funds are managed by EDF Invest (see yield assets below).
At the year-end, dedicated assets are presented in debt and equity securities in the balance sheet, at their liquidation value.
In the course of operational asset monitoring, the Group applies long-term, specific management rules defined and supervised by its governance bodies (maximum investment ratios, volatility analyses and assessment of individual fund manager quality).
The yield assets managed by EDF Invest consist mainly of assets related to investments in infrastructures and real estate, made either directly by EDF Invest or by investment funds under delegated management arrangements.
Through unlisted investment funds, EDF Invest also manages growth assets and fixed-income assets.
At 31 December 2020, the assets managed by EDF Invest represent a total realisable value of €6,905 million, including €6,420 million of yield assets. Yield assets particularly include:
In April 2020, EDF Invest acquired a minority interest in Energy Assets Group (EAG) in the United Kingdom (smart meters), and minority interests in real estate assets (office in France and healthcare properties in Europe).
In December 2020 EDF SA acquired investments in wind and solar power plants in the United States, Canada and Portugal from EDF Renewables. All these investments were allocated to dedicated assets in 2020, in addition to the allocation during the first half-year corresponding to the balance of the investment in the MiRose and Red Pine wind farms acquired from EDF Renewables in 2019.
