A contingent liability is:
For the years 2012 to 2017, the French tax authorities notified the Company of certain recurrent tax reassessments concerning the Contribution sur la Valeur ajoutée des Entreprises (tax on corporate value added) and questioned the deductibility of long-term provisions.
EDF is party to a number of labour lawsuits, primarily regarding working hours. EDF estimates that none of these lawsuits, individually, is likely to have a significant impact on its results or financial position. However, because they relate to situations that could concern a large number of EDF’s employees, any increase in such litigations could have a potentially negative impact on EDF’s financial position (although the risk has been mitigated by the signature of the agreement on fixed numbers of working days in 2016).
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 de commissioning 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’sInsurance 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 38.2.2 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 dedicated assets in 2020 as a result of the previous regulations, which was confirme 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 provision concerned, is above 100%, and withdrawals from dedicated assets are no 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 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 to 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 note 38.2.2).
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).
