EDF_REGISTRATION_DOCUMENT_2017

RISK FACTORS AND CONTROL FRAMEWORK Risks to which the Group is exposed

The Group is exposed to the physical and transition effects of climate change. The assets and activities of the EDF group are likely to be significantly affected by any physical and societal effects of climate change. These effects may be difficult to predict and could have unfavourable consequences for the financial condition of the Group, its operating results, cash flows or facilities. New regulatory developments associated with climate change could also have a negative impact on EDF’s activity. The Group’s climate change adaptation strategy is described in section 3.3.1. “EDF group’s decarbonisation strategy” and 3.3.2 “Adapting the Group’s business to climate change”. The Group must comply with increasingly restrictive environmental and public health regulations, which generate costs and are sources of potential liability. The activities of the Group are subject to rules in matters of protection of the environment and public health that are increasingly numerous and demanding, both at the French and European levels. These rules concern the Group’s industrial generation activities, as well as energy supply and energy-related services, which must, for example, incorporate the concept of demand management into their offers (for a description of the environmental, health and safety regulations applicable to the Group, as well as future regulations likely to have an impact on its activities, see sections 1.5.6.1 “General regulations that are applicable to the environment, health, hygiene and safety” and 1.5.6.2 “Regulations applicable to EDF installations and group activities”). The French regulatory framework has been strengthened with the entry into force of the law on the duty of care of parent companies and subcontracting companies requiring them to implement measures relating to the activity of the Company and of all the companies it controls aimed at identifying risks and preventing serious infringements of human rights and fundamental freedoms, the health and safety of persons and the environment arising directly or indirectly from the activities of the parent company and subcontracting companies, as well as companies it controls or its subcontractors or suppliers. Non-compliance with these present or future regulations could expose the Group to significant litigation (see section 2.4. “Legal proceedings and arbitration”). The Group could be found liable, even if it is not at fault or has not breached applicable regulations. Furthermore, the Group may be compelled to compensate breaches, damage or injuries caused by entities that were not part of the EDF group at the time they were committed, if the Group thereafter takes over their facilities. These regulations may be significantly reinforced by the national or European authorities (see section 1.5 “Legislative and regulatory environment”), which would have a negative impact on the activities of the Group and its financial situation. The Group continuously performs a monitoring in order to assess the impact of regulatory changes on its activity. The provisions implemented are described in section 3.2 “Environmental and societal requirements”. The Group’s compliance with current regulations, and future changes to such regulations, has resulted and could continue to result in an increasing level of operating costs and investments necessary for such compliance. The Group may even be required to close facilities that cannot be made compliant with new regulations. In addition, other regulations, which may be more restrictive or which may apply to new areas which are not currently foreseeable, may be adopted by the competent authorities and have a similar effect. Lastly, stakeholders’ external perception of the Group’s Sustainable Development policy may change, resulting in a deterioration of the Group’s non-financial rating and image. As the Group’s majority shareholder, the French government may influence the activities or decisions made by the Group. Pursuant to Article L. 111-67 of the French Energy Code, the French government is EDF’s principal shareholder and must retain ownership of at least 70% of its share capital. Under French law, a majority shareholder controls most corporate decisions, including resolutions that must be adopted by General Meetings (in particular, the appointment and dismissal of members of the Board of Directors, the distribution of dividends and amendments to the articles of association, including in the context of share capital increases, mergers or asset contribution deals). In addition, the legal restriction on dilution of the French government’s stake may limit EDF’s capacity to access capital markets or carry out external growth transactions.

The results of the referendum in the United Kingdom on the withdrawal from the European Union are likely to have a negative effect on EDF’s overall economic conditions, financial markets and activities. In June 2016, a majority of UK citizens voted in favour of withdrawing from the European Union in a national referendum. The consequences of this referendum, and the procedures for the withdrawal of the United Kingdom, are the subject of negotiations within the withdrawal procedure specified by Article 50 of the Treaty on the European Union. The meeting of the European Council of 15 December 2017 enabled the second phase of negotiations to begin. Numerous policies are likely to evolve (monetary, tax, economy, energy…). The impact of these evolutions on the economic and financial environment (notably in terms of growth, exchange rates and inflation) and on the Group may exist from the transition phase or once the course of events is stabilised. These consequences will depend on the content of the negotiations, not only between the United Kingdom and the European Union, but also with other parties involved, such as the Commonwealth, the United States and China. The referendum created significant uncertainty about future relations between the United Kingdom and the European Union, including in terms of which laws and regulations of European origin the United Kingdom will decide to replace or replicate in the event of withdrawal. Furthermore, the United Kingdom’s withdrawal from the European Union could lead to changes in energy policy both within the European Union and the United Kingdom along with changes to texts relating to nuclear activity. The draft law empowering the British Prime Minister to implement the right of withdrawal in accordance with Article 50 of the Treaty on European Union, which was approved by the House of Commons on 1 February 2017, provides for the joint exit from the European Atomic Energy Community established by the “Euratom” treaty, of which the United Kingdom became a member on 1 January 1973 at the same time as its becoming a member of the European Economic Community. Specific agreements will be studied accordingly in order to allow for continued cooperation in the nuclear field and operational continuity, with the United Kingdom remaining a member of the International Atomic Energy Agency. However, delays in setting up or deploying the new provisions could disrupt the implementation of ongoing or future projects. The impact of all these developments on the activity of the Group in the United Kingdom remains limited in the short term. See section 1.4.5.1 “United Kingdom”. It may however result in the worsening of the economic conditions leading to a restriction of the energy market. The evolution of the monetary and economic environment, the deflationary or inflationary context, as well as potential fluctuations in exchange rates or new adjustments by economic players may lead both to new risks and new opportunities for the Group in the United Kingdom market. This new context may lead to changes in the profitability conditions for projects and raise questions or even repel investors associated with future projects of the Group in the United Kingdom or in Europe. These developments, the uncertainty that they create, as well as the belief that any of them might occur, are likely to weaken European economic activity, threaten the stability of its regulatory environment and cause significant fluctuations in exchange rates (see the risk factor “exchange rate risk” below). This could have a material adverse effect on global economic conditions, and in particular on the Group’s business, financial condition, and operating results, in particular in the United Kingdom. The Group does business in numerous countries and may face periods of political, economic or social instability. The Group is exposed to “country risk”, meaning that economic, financial, political or social conditions of a country in which it operates may affect its financial interests. The forthcoming elections in the countries in which the Group operates are likely to contribute to an environment of political uncertainty, and therefore legislative and regulatory uncertainty, and to a potential deterioration of economic conditions, notably if a country exits the euro zone or the European Union. A material change in the political or macroeconomic environment may require EDF to bear additional charges and/or expenditures in order to adapt to and comply with such new environment.

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EDF I Reference Document 2017