Analysis of the equity risk is presented in the section entitled “Management of financial risk on EDF’s dedicated assets”.
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 sheet provisions.
33% of the assets covering EDF’s employee benefit obligations were invested in equities at 31 December 2022, representing an amount of €3.1 billion of equities.
At 31 December 2022, the British Energy pension fund (British Energy Generation Group), now renamed EDF group (EDFG), reduced its allocation to equities and equity funds (excluding diversified growth funds) to bring its year-end exposure to less than 1%, i.e. an investment of £36 million in equities.
Dedicated assets have been built up progressively by EDF since 1999 to ensure secure financing of its long-term nuclear obligations. The Law of 28 June 2006, codified in France’s Environment Code (Articles L. 5 94-1 to 14) and its implementing regulations, defined the provisions that are not related to the operating cycle, and must therefore be covered by dedicated assets. They are listed in note 15.1.2 to the 2022 consolidated financial statements, “Coverage of EDF’s long-term nuclear obligations”.
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 of EDF.
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 under a policy for ensuring secure financing of nuclear expenses, in compliance with the regulations. 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 obligations. Strategic allocation is validated by EDF’s Board of Directors and reviewed every three years unless circumstances require otherwise. A new strategic allocation was validated in 2021 to increase diversification in fixed-income markets. The 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 EDF Gestion (formerly the Listed Asset Management Division) and by EDF Invest.
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 Financial Risks Control department.
At 31 December 2022, the total value of the portfolio was €33,904 million compared to €37,454 million in 2021. Changes in dedicated assets in 2022 and details of their realisable value and book value are described in note 15.1.2 to the 2022 consolidated financial statements.
CONTENT AND PERFORMANCE OF EDF’S DEDICATED ASSET PORTFOLIO
| 31/12/2022 | 31/12/2021 | |||||
|---|---|---|---|---|---|---|
| (in millions of euros) | Share of portfolio | Stock market or realisable value | Performance for 2022 | Share of portfolio | Stock market or realisable value | Performance for 2021 |
| Yield assets | 25.9% | 8,772 | 11.2% | 21.1% | 7,908 | 17.1% |
| Growth assets | 36.1% | 12,251 | -15.8% | 40.9% | 15,320 | 22.6% |
| Fixed-income assets | 38.0% | 12,881 | -12.1% | 38.0% | 14,226 | -0.7% |
| TOTAL DEDICATED ASSETS | 100% | 33,904 | -8.5% | 100% | 37,454 | 11.9% |
EDF is exposed to equity risks, interest rate risks and foreign exchange risks through its dedicated asset portfolio.
The market value of the listed equities in EDF’s dedicated asset portfolio was €11,698 million at 31 December 2022. The volatility of the listed equities at the same date was 17.04% based on 52 weekly performances, compared to 10.93% at 31 December 2021. Applying this volatility to the value of listed equity assets at 31 December 2022, the Group estimates the annual volatility of the equities portion of dedicated assets at €1,993 million.
At 31 December 2022, the sensitivity of the listed bonds (€11,089 million) was 4.9, i.e. a uniform 100 base point rise in interest rates would result in a €538 million decline in market value. This sensitivity was 5.3 at 31 December 2021.
In compliance with the applicable regulations, based on the target allocation for dedicated assets stated above, studies to simulate the expected rate of return for the next few years, particularly the next twenty years (a horizon close to the duration of nuclear provisions), show with high probability that the average projected rate of return is higher than the estimated 4.8% the discount rate used to calculate nuclear provisions at 31 December 2022 (see note 15.1.1 to the 2022 consolidated financial statements).
The average annualised performance of dedicated assets since 2004, the year when their value first exceeded €1 billion, was 5.6% at 31 December 2022.
(1) An internal committee and permanent body for evaluation, consultation and operational decision-making for dedicated asset management.
