REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the common provisioning fund in 2022
Date: 2023-05-31
Institutions: Directorate-General for Budget, European Commission
Subjects: EU budget, budgetary reserve (EU), financial management, fund (EU), investment, multiannual financial framework, provision, reserves

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 31.5.2023  COM(2023) 288 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the common provisioning fund in 2022 {SWD(2023) 170 final}  
 
 
Table of Contents 

INTRODUCTION ........................................................................................................................................ 2 

1. 
SECTION I ........................................................................................................................................ 4 
1.1.  Key milestones in 2022 ....................................................................................................................... 4 
1.2.  Opening of new compartments ........................................................................................................... 4 
New compartments under the InvestEU Regulation .......................................................... 6 
1.2.1. 
New compartments under the NDICI Regulation ()........................................................... 6 
1.2.2. 
New compartments for Ukraine-related exposures ............................................................ 7 
1.2.3. 
1.3. 
Financial statements of the CPF as at 31 December 2022 .................................................................. 7 
1.4.  Guarantee calls and payment claims ................................................................................................... 7 
Effective provisioning rate .................................................................................................................. 8 
1.5. 

SECTION II ...................................................................................................................................... 9 
2. 
2.1. 
Investment strategy ............................................................................................................................. 9 
2.2.  Composition and characteristics of the portfolio ................................................................................ 9 
2.3. 
Environmental, social and governance (ESG) footprint ..................................................................... 9 
2.4.  CPF performance in 2022 ................................................................................................................. 10 

SECTION III ................................................................................................................................... 12 
3. 
3.1.  Diversified investment universe ........................................................................................................ 12 
Enhanced, ESG-focused benchmark ................................................................................................. 12 
3.2. 

Conclusions.................................................................................................................................................. 13 

 
 
 
 
 
 
 
INTRODUCTION 

This report is the second annual report on the common provisioning fund (CPF) (1), for the period 
from 1 January 2022 to 31 December 2022. 

The CPF, established under Article 212 of the Financial Regulation  (FR), is the capital reserve 
from  which  funds  are  drawn  to  meet  required  outflows  and  guarantee  calls  stemming  from 
supported  operations.  It  serves  to  smooth  out  the  impact  of  individual  calls  on  the  EU  budget 
related to losses in respect of operations supported by financial instruments, budgetary guarantees 
or financial assistance to third countries, established by different EU legislative instruments. The 
CPF is managed in a way that should, at least, strive for capital preservation over its investment 
horizon (9 years) (2). 

The  CPF  became  operational  in  January  2021.  At  the  end  of  2022  its  market  value  stood  at 
EUR 14.39 billion, making it the largest portfolio directly managed by the Commission.  

This  report  outlines  key  developments  related  to  the  functioning  of  the  CPF  in  2022  –  a  year 
marked by steep interest rate rises and the war of aggression against Ukraine, which exacerbated 
inflationary  dynamics  and  strongly  impacted  the  valuation  of  fixed  income  portfolios,  while 
fuelling  market  volatility.  It  presents the  financial  and  investment  characteristics  of  the fund  in 
light of the prevailing market situation, as well as gives an update on the actions the Commission 
took to enhance its longer-term performance. 

This  report  is  strictly  focused  on  asset  management  aspects.  Contingent  liabilities  will  be 
discussed in a separate report under Article 250 of the Financial Regulation (FR). 

(1)  Pursuant  to  Article  214  of  the  Financial  Regulation  (Regulation  (EU,  Euratom)  2018/1046  of  the 
European Parliament and of the Council of 18 July 2018 on the financial rules applicable to the general 
budget  of  the  Union,  amending  Regulations  (EU)  No  1296/2013,  (EU)  No  1301/2013,  (EU)  No 
1303/2013, (EU) No 1304/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) No 223/2014, (EU) 
No 283/2014, and Decision No 541/2014/EU and repealing Regulation (EU, Euratom) No 966/2012, 
OJ L 193, 30.7.2018, p. 1, the Commission shall report annually to the European Parliament and to the 
Council  on  the  common  provisioning  fund.  The  Asset  Management  Guidelines  of  the  CPF 
(Commission  Decision  of  25.3.2020  on  the  Asset  Management  Guidelines  of  the  common 
provisioning fund (C(2020) 1896 final, OJ C 131, 22.4.2020, p. 3–11) provide further guidance on the 
contents of this report. 

(2)  Article 2(1) of the Asset Management Guidelines. 

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The report consists of three sections: 

– 

– 

– 

Section I presents key events related to the functioning of the CPF in 2022. It also gives an 
overview  of  calls  on  guarantees  and  transactions,  as  well  as  an  update  on  the  applied 
effective provisioning rate. 
Section  II  focuses  on  the  portfolio’s  composition,  risk  profile  and  performance  in  2022, 
presented  against  the  benchmark,  along  with  its  environmental,  social,  and  governance 
(ESG)  profile.  Additionally,  it  describes  the  market  environment  and  developments  that 
shaped the fund’s performance in 2022. 
Section  III  presents  the  results  of  actions  taken  by  the  Commission  to  ensure  value 
protection  and  growth  opportunities  for  the  CPF  over  the  longer  term:  a  diversified 
investment universe and an enhanced, ESG-focused benchmark 

Page 3 / 13 

 
 
 
 
 
1.  SECTION I 

1.1.  Key milestones in 2022 

In  2022  the  CPF  received  EUR  3.26  billion  of  net  contributions.  As  in  2021,  it  functioned 
without  operational  incidents  in  line  with  established  asset  management  procedures  and  within 
the framework of the relevant governance structure (3). 

Over  the period  2023-2030,  the  CPF is expected  to receive  an  additional  EUR  23.17 billion in 
inflows from the contributing instruments. 

As at 31 December 2022, the value of net assets (4) was EUR 14.39 billion, as compared to EUR 
12.31 billion as at 31 December 2021. 

1.2.  Opening of new compartments 

The  resources  of  the  CPF  are  accounted  for  in  compartments  for  the  purpose  of  tracing  the 
amounts relating to the various contributing instruments (5). This is necessary to ensure that each 
instrument  is  allocated  both  its  share  of  resources  and  any  returns,  positive  or  negative, 
proportionate to assets owned. Liabilities resulting from different policy instruments (guarantees 
or provisioned loans) are ascribed fully to that policy, and therefore require accurate accounting 
and  tracking  of  assets  belonging  to  the  different  policies.  Different  financial  and  risk 
characteristics  of  the  underlying  policy  instruments  also  need  to  be  managed  and  tracked 
separately, in the dedicated compartments.  

Despite being allocated to different compartments, all assets managed in CPF follow a  common 
asset management strategy, generating important efficiencies in terms of asset management and 
risk management. 

In  October  2022  several  new  compartments  were  opened  in  the  CPF,  as  envisaged  under  the 
various basic acts, bringing their number up to 14 (6). As at 31 December 2022, eight out of these 
compartments were fully operational and contained funds, as presented in Figure 1 and Figure 2. 
The remaining compartments will be activated at a later stage upon reception  of corresponding 
first inflows. 

(3)  The governance structure was presented in the CPF annual report for 2021, EUR-Lex - 52022DC0213 

- EN - EUR-Lex (europa.eu). 

(4)  The net asset value (NAV) of the CPF is determined by the value of the total assets, less the liabilities, 

at the respective NAV calculation date. 

(5)  According  to  Article  3  of  the  AMGs,  the  resources  of  the  CPF  are  allocated  into  compartments 

corresponding to each of the contributing instruments as outlined in Article 1 of the AMGs. 

(6)  Opening  of  two  additional  InvestEU  MS  guarantee  compartments  will  take  place  in  2023,  bringing 

their total number to 16. 

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Compartments opened in 2021 

EFSI (7) 

GFEA (8) 

EFSD (9) 

InvestEU 

Compartments opened in 2022 

EFSD+ 

EFSD+Post-2020 MFA 

Exceptional MFA Ukraine 

Post-2020 Euratom loans 

Repurposed ELM loans Ukraine 

InvestEU Guarantee Romania 

InvestEU Guarantee Czech Republic 

InvestEU Guarantee Finland 

InvestEU Guarantee Greece 

InvestEU Blending Operations 

Figure 1 –CPF compartments as at 31.12.2022 

Market value in EUR as at 31.12.2022 

8,463,863,835.36 

2,466,536,435.38 

697,793,925.32 

1,651,342,768.93 

1,066,911,767.96 

- 

- 

- 

- 

- 

13,457,062.53 

17,419,930.38 

- 

17,760,000.00 

(7)  European Fund for Strategic Investments 
(8)  Guarantee Fund for external actions (GFEA), holding the provisions for the external lending mandate 

(ELM), legacy (macro-financial assistance - MFA) and Euratom programmes. 

(9)  European Fund for Sustainable Development. 

Page 5 / 13 

 
 
 
 
 
 
 
 
 
                                                      
InvestEU FI
0.12%

InvestEU 
Blending 0.12%

InvestEU CZ
0.09%

InvestEU
11.47%

EFSD+
7.41%

EFSD 4.85%

GFEA 17.13%

EFSI 58.80%

Figure 2 –Fully operational CPF compartments containing funds as at 31.12.2022 

1.2.1.  New compartments under the InvestEU Regulation 

The InvestEU Regulation (10) enables Member States (MS) to provide additional contributions to 
the  InvestEU  programme.  Separate  compartments  for  each  MS  ensure  separate  tracking  of  the 
level of provisioning.  

To this end, four new InvestEU MS compartments were opened in 2022, two of which already 
received  funds  by  the  end  of  the  year.  A  separate  compartment  with  contribution  from  several 
Union sectoral programmes/funds was also opened for blending operations that provide for top-
up of EU guarantee/InvestEU Fund. 

1.2.2.  New compartments under the NDICI Regulation (11) 

Upon  entry  into  force  of  the  regulation  establishing  the  Neighbourhood,  Development  and 
International  Cooperation  Instrument  (NDICI),  three  new  compartments  were  open  to  hold 
provisioning  for  the  EU’s  actions  in  the  external  dimension,  under  the  External  Action 
Guarantee: 

the new European Fund for Sustainable Development Plus (EFSD+); 

1. 
2.  post-2020 macrofinancial assistance (MFA) loans; 
3.  post-2020 Euratom loans. 

(10)  Regulation  (EU)  2021/523  of  the  European  Parliament  and  of  the  Council  of  24  March  2021 
establishing  the  InvestEU  Programme  and  amending  Regulation  (EU)  2015/1017  (OJ  L  107, 
26.3.2021, p. 30-89) 

(11)  Regulation (EU) 2021/947 of the European Parliament and of the Council of 9 June 2021 establishing 
the  Neighbourhood,  Development  and  International  Cooperation  Instrument  –  Global  Europe, 
amending  and  repealing  Decision  No  466/2014/EU  and  repealing  Regulation  (EU)  2017/1601  and 
Council Regulation (EC, Euratom) No 480/2009 (OJ L 209, 14.6.2021, p. 1-78). 

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1.2.3.  New compartments for Ukraine-related exposures 

To reflect the need to manage different asset/liability profiles separately, two new compartments 
were foreseen in the basic acts for Ukraine-related exposures for the period 2021-27: 

1.  MFA 1 (12) and MFA2(13) loans;  
2.  Repurposed EIB’s loans under the 2014-20 external lending mandate (ELM). 

1.3.  Financial statements of the CPF as at 31 December 2022 

The net assets of the CPF stood at EUR 14.39 billion as at 31 December 2022. As per current 
investment strategy (see section 2.1), the main assets comprised the securities portfolio investing 
mainly in investment grade bonds (sovereign, SSA (14), corporate (15), financial), classified at fair 
value  through  surplus  or  deficit  (EUR  14.06  billion) and  cash  and  cash  equivalents (EUR  0.33 
billion). 

In terms of the 2022 statement of financial performance, the CPF ended the year with a return of 
EUR -8.8%, caused by valuation losses due to steep interest rate rises. The CPF performance in 
its macroeconomic context will be further explained in the next two sections. 

More  information  on  the  financial  statements  is  available  in  the  staff  working  document 
accompanying this report. 

1.4.  Guarantee calls and payment claims 

The liquidity management of the guarantee calls and payment claims is facilitated by a liquidity 
buffer, as provided for in the Asset Management Guidelines. The liquidity buffer is constituted 
by  limited  reserves  of  cash  held  at  the  Commission’s  Central  Treasury  to  cover  the  expected 
imminent cash outflows.  

The buffer started the year with a balance of EUR 92 million; during the year it received inflows 
of EUR 473 million, while a net amount of EUR 222 million was paid out in 2022 (16). At the end 
of 2022, the remaining balance of the liquidity buffer amounted to EUR 342 million. 

The 2022 calls on the CPF provisions by the respective budgetary guarantees(17), as well as other 
demands on the resources held by the CPF compartments, can be summarized as follows (18): 

• 

EFSD compartment: a call of EUR 0.4 million was paid.  

(12)  Decision (EU) 2022/1201 of 12 July 2022 of the  European Parliament and of the Council providing 

exceptional macro-financial assistance to Ukraine (OJ L186, 13.7.2022, p. 1-7). 

(13)  Decision  (EU)  2022/1628  of  20  September  2022  of  the  European  Parliament  and  of  the  Council 
providing  exceptional  macro-financial  assistance  to  Ukraine,  reinforcing  the  common  provisioning 
fund by guarantees by Member States and by specific provisioning for some financial liabilities related 
to Ukraine guaranteed under Decision No 466/2014/EU, and amending Decision (EU) 2022/1201 (OJ 
L 245, 22.9.2022, p. 1-13). 

(14)  Supranational, sub-sovereigns and agency 
(15)  Investment  in  corporate  bonds  is  done  via  both  individual  issues  and,  since  2022,  Exchange  Traded 

Funds tracking corporate bond indices. 
(16)  Compared to EUR 73.5 million in 2021. 
(17)  Individual  guarantee  calls  are  mentioned  in  a  separate  report  under  Article  41(5)  of  the  Financial 

Regulation (FR). 

(18)  It  is  important  to  mention  that  payments  may  arise  in  2023  or  later  which  may  require  ex  post 

adjustment of the 2022 accounts. 

Page 7 / 13 

 
 
                                                      
• 

• 

• 

GFEA compartment: calls of EUR 194.3 million were paid under the external lending 
mandate (ELM) guarantee. In addition, there were minor operational expenses for an 
amount slightly below EUR 0.3 million; 
InvestEU  EU  compartment:  outflows  in  the  amount  of  EUR  0.17  million  for  expenses 
and EUR 0.07 million for restructuring losses were registered; 
EFSI  compartment:  net  consumption  of  the  EFSI  guarantee  amounts  to  EUR  27.0 
million,  including  net  calls  and  value  adjustments  of  equity  portfolios  of  EUR  17.5 
million,  SMEW  calls  for  liquidity  management (19)  on  guarantee  products  of  EUR  6.2 
million, and expenses (funding and recovery costs) of EUR 3.3 million. 

1.5.  Effective provisioning rate 

The concept of effective provisioning rate (EPR) was described in the first CPF annual report for 
2021 (20). 

Following calculations based on the established methodology (21), the Commission proposed that 
the  EPR  for  2022  remained  at  100%.  Accordingly,  in  the  Draft  Budget  2023,  the  Commission 
proposed to the budgetary authority that no surplus of provisions is to be returned. This approach 
was confirmed in the adopted Annual Budget 2023. 

(19)  Net of replenishments. 
(20)  EUR-Lex - 52022DC0213 - EN - EUR-Lex (europa.eu) 
(21)  Commission  Delegated  Decision  (EU,  Euratom)  C(2020)7684  supplementing  Regulation  (EU, 
Euratom) 2018/1046 of the European Parliament and of the  Council  with detailed conditions  for the 
calculation of the effective provisioning rate of the common provisioning fund (OJ L 42, 5.2.2021, p. 
9–12). 

Page 8 / 13 

 
 
 
 
                                                      
2.  SECTION II 

2.1.  Investment strategy 

The  general  assumptions  behind  the  CPF  investment  strategy  were  described  in  the  first  CPF 
annual report for 2021 (22). 

The  bulk  of  the  CPF  has  been  to  date  restricted  to  investment  in  Euro-  and  US  Dollar-
denominated investment-grade fixed income securities (bonds). 

2.2.  Composition and characteristics of the portfolio 

The CPF portfolio at year-end is well diversified across the different asset classes in the eligible 
fixed  income  universe,  including  some  limited  exposure  to  non-euro  denominated  securities 
(USD)  and  cash  or  cash  equivalents.  Currency  gains  or  losses  on  non-euro  securities  and 
transactions  are  largely  offset  by  opposite  changes  in  foreign  exchange  derivatives  used  as 
hedges.  

The  credit  quality  of  the  CPF  portfolio  is  high,  with  an  average  rating  of  A,  suggesting  a 
negligible default probability (23).  

Over  35.7%  of  the  portfolio’s  market  value  is  invested  in  AAA  securities (24),  with  the  rest 
distributed across the investment-grade scale.  

USD-denominated investments represented 3.5% of the portfolio’s market value as of December 
2022 (25), with currency risk hedged using forward contracts. 

As  of  December  2022  about  18%  of  the  portfolio  consisted  of  short-term  liquid  assets (26), 
providing for a buffer for liquidity risks (27). 

More  information  about  the  composition  and  characteristics  of  the  portfolio  is  available  in  the 
staff working document accompanying this report. 

2.3.  Environmental, social and governance (ESG) footprint  

The ESG footprint of the portfolio remains strong, with 14.0% share of ESG-labelled bonds (28), 
compared  to  13.4%  in  2021.  The  proactive  approach  to  ESG  investing  favours  ESG-labelled 
bonds,  provided  they  align  with  risk  management  criteria  and  overall  investment  strategy.  The 
Commission continues to reinforce the ESG footprint in the CPF’s new investment strategy, as 
explained in Section III. 

(22)  EUR-Lex - 52022DC0213 - EN - EUR-Lex (europa.eu) 
(23)  0.04% default probability over a one year horizon. 
(24)  Compared to over 26.8% in 2021. 
(25)  Compared to 5.1% in 2021. 
(26)  Compared to 26% in 2021. 
(27)  On top of liquidity buffer described in Section 1.4. 
(28)  In  assessing  whether  bonds  are  classified  as  ESG-labelled  for  the  purposes  of  CPF  allocation,  the 
Commission relies on the published assessment of the ‘use of proceeds’ of the asset in question by the 
analytics and data providers which the Commission uses for its asset management function. 35.6% of 
the ESG-labelled assets had an AAA rating, while the lowest rated asset class (BBB-) corresponded to 
only 0.1%. 

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2.4.  CPF performance in 2022 

As stated above, the CPF is a liquid and well diversified bond portfolio. Investing exclusively in 
highly  rated  debt  instruments  has  historically  delivered  positive  returns  for  the  Commission’s 
portfolios. However, this strategy could not insulate the portfolios from the sharp rise of yields 
across the board that occurred in 2022, on the back of persistently  higher inflation  and a sharp 
tightening of monetary policy by the central banks. Bond prices fell, as they move inversely to 
the yields, significantly impacting the valuations. In fact, 2022 turned out to be the worst year for 
bond markets in more than forty years; global bond market indices and euro-denominated bond 
market  indices  declined  respectively  by  13.27%  and  17.17% (29).  Consequently,  the  CPF 
performance  was  also  negatively  impacted,  although  remaining  in  line  with  its  benchmark  and 
faring  better  than  the  broader  bond  market.  In  particular,  the  CPF  posted  a  negative  annual 
absolute performance of -8.85%, which was 15bps better than the annual performance of the CPF 
benchmark (-9.00%) (30).  

The  following  box recaps the  market  environment in  2022 and its  impacts  on  the  bond  market 
returns.  The  actions  taken  by  the  Commission  as  asset  manager  are  described in  Section  III  of 
this report. 

(29) The  Bloomberg Global Aggregate  Bond Index (EUR  hedged), a broad benchmark representing EUR 
61  trillion  worth  of  sovereign  and  corporate  investment  grade  (IG)  debt  denominated  in  various 
currencies,  lost  13.7%  in  2022.  The  Bloomberg  Euro-Aggregate  Index,  a  EUR  13  trillion  broad 
benchmark of euro denominated investment grade debt posted a record loss of 17.2% in 2022. 

(30) The annual performance is calculated using market prices (mark-to-market) and a time-weighted basis 

in order not to be affected by any change in the size of the portfolio, due to inflows or outflows. 

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Market developments in 2022 

Market  developments  in  2022  were  dominated  by  the  geopolitical  instability  and  rising 
inflationary pressures. Fuelled by a steady increase in energy prices and widespread supply chain 
bottlenecks,  headline  inflation  proved  much  stickier  than  previously  expected  and  rose 
persistently  through  most  of  the  year,  peaking  at  multi-decade  highs  of  10.6%  in  Europe  and 
9.1% in the USA, before declining to close the year at 9.2% and 6.5% respectively. In response, 
major central banks ramped up interest rates at the fastest pace and biggest scale in decades. The 
magnitude of the move  exceeded  market expectations. As recently as December 2021,  markets 
were pricing just 10bps of interest rate hikes for the entire 2022.  

However,  since  July,  the  ECB  raised  interest  rates  by  a  total  of  250bps  in  steps  of  50-75bps, 
while in the USA rate hikes amounted to 425bps. The war of aggression against Ukraine in late 
February prompted a sharp rise in inflation, particularly in energy prices, erasing the possibility 
of  “transitory”  inflation,  which  was  the  most  likely  scenario  of  major  central  banks  at  the 
beginning  of  the  year.  The  yield  on  the  benchmark  10Yr  German  government  bond  started 
increasing and reached 1.76% in mid-June from -0.08% at the beginning of March.  

By the end of the year, inflation pressures also began to slowly recede as energy prices declined 
from their peaks. However, inflation remained elevated in other  components  of consumer price 
indices.  Consequently,  interest  rates  continued  to  rise  and  the  10Y  German  government  bond 
closed the year at 2.56%. During the course of 2022, interest rates had moved within a range of 
275bps, whereas in 2021, the range amounted to 69bps.  

Page 11 / 13 

 
 
 
 
 
 
3.  SECTION III 

3.1.  Diversified investment universe 

As  announced  in  the  CPF  annual  report  for  2021,  in  2022  the  Commission  took  action  to 
diversify the CPF investment universe. By the end of 2022 the Commission finalized the work on 
the  operational  framework  allowing  equity  investments  via  Exchange-Traded  Funds  (ETFs), 
offering  cost-efficient  and  diversified  exposure  to  broad  equity  indexes  through  a  basket  of 
stocks.  This  approach  mitigates  the  risk  from  investing  in  individual  companies’  stocks.  The 
inclusion of equities as a new asset class in the CPF investment universe was based on a thorough 
analysis,  with  the  objective  of  enhancing  diversification  and  optimizing  risk  parameters  and 
expected return of the portfolio over the longer-term. 

The  exposure  to  equity  will  be  built  progressively  towards  a  level  of  about  7-8%  of  the  CPF 
portfolio,  starting  from  January  2023  and  taking  into  account  market  conditions  and  valuation 
levels.  This  percentage  has  been  identified  as  optimal  in  terms  of  risk/return  profile  and  risk 
appetite. This  choice  is  reflected  in  the updated  CPF benchmark,  as explained  in  the following 
section. 

3.2.  Enhanced, ESG-focused benchmark 

The decision to update the CPF benchmark by including investment into equity ETFs was driven 
by  the  objective  of  enhancing  the  risk/return  profile  of  the  portfolio.  The  new  benchmark, 
applicable  as  of  January  2023,  reflects  the  investment  objective  (i.e.  capital  preservation  as 
primary objective), the investment horizon and the risk tolerance of the portfolio, as specified in 
the Asset Management Guidelines.  

This  benchmark  update  was  also  an  opportunity  to  integrate  Environmental  Social  and 
Governance factors, since ESG is an important consideration for the management of the CPF, in 
line  with  larger  Commission  commitments  towards  the  green  transition.  Despite  already 
including  negative  screening  criteria  in  the  AMGs,  such  as  the  exclusion  of  bonds  related  to 
activities involving gambling or tobacco, and holding a large exposure to ESG-labelled securities 
in the CPF portfolio, the Commission committed to putting the ESG considerations for the CPF 
on  a  firmer  footing  and  to  including  the  ESG  characteristics  in  the  updated  version  of  the 
benchmark.  

To achieve this objective, two dedicated ESG indices were included in the new CPF benchmark. 
The green-bond index sets an ambitious target for the proportion of assets to be invested in the 
ESG-labelled  bonds  (14.7%).  This  is  in  line  with  the  existing  ESG  investment  practice,  where 
investments in ESG-labelled bonds are privileged over conventional bonds, when possible. The 
second  ESG  index,  the  Paris-aligned  Benchmark  (PAB)  corporate  bond  index,  guides  the 
investments towards the Paris-aligned corporate issuers. Paris-aligned investing is also utilized by 
other  institutional  asset  managers,  such  as  European  Investment  Bank,  and  as  such  presents  a 
welcome stakeholder response and further increased credibility. The inclusion of ESG indices in 
the  benchmark  further  reinforces  alignment  of  the  Commission’s  asset  management  activities 
with the EU’s climate goals and political priorities.  

When  setting  up  the  CPF  benchmark,  the  Commission  followed  a  rigorous  process,  based  on 
modern portfolio theory (31) and in line with market best practices.  

(31) Portfolio Selection, Harry Markowitz, The Journal of Finance, Vol. 7, No.1 (Mar., 1952), pp. 77-91. 
The  input  parameters  for  the  benchmark  optimization  exercise  were  derived  by  combining  various 

Page 12 / 13 

 
 
                                                      
The new CPF benchmark was approved and validated in December 2022. The implementation of 
the benchmark began in January 2023. Alignment of the portfolio with the new benchmark will 
be  implemented  progressively  up  to  end  of  2023.  The  benchmark  also  sets  a  target  of  14.7% 
allocation to ESG-labelled bonds, versus 14% in the CPF portfolio at the end of 2022. 

CONCLUSIONS 

The second year of CPF operation was marked by growth in absolute portfolio size due to new 
inflows, as well as increased complexity in terms of a number of compartments and contributing 
instruments feeding into the fund. 

No  operational  risk  events  occurred  in  2022,  and  all  guarantee  calls  were  met,  with  accounts 
finalised on schedule. The CPF, holding EUR 14.39 billion in assets at the end of 2022, continues 
to  serve  as  a  robust  capital  buffer  for  budgetary  guarantees  and  provisioned  loans  to  third 
countries. 

Economic  and  market  developments  in  2022  made  it  one  of  the  worst  years  for  fixed-income 
portfolios  for  more  than  a  generation,  as  yield  levels  moved  significantly  higher,  against  a 
backdrop of persistent inflation and tighter monetary policy. The unprecedented and unexpected 
steep increase in interest rates led to reduction of CPF portfolio’s value in 2022 of around 8.8%, 
due  to  valuation  losses.  In  the  longer-term,  higher  interest  rates  provide  the  foundation  for 
sustained  positive  performance.  This  is  reflected  in  the  portfolio’s  yield-to-maturity (32),  which 
had  reached  3%  compared  to  0%  at  the  start  of  the  year.  The  accrual  of  increased  yields  and 
reinvestment  of  maturities  at  higher  rates  provide  important  support  and  a  cushion  for  future 
returns. 

To  further  strengthen  CPF’s  resilience,  in  2022  the  Commission  continued  work  on  asset 
diversification  to  incorporate  some  exposure  to  equity  markets  (through  index-tracking  funds), 
updated  the  CPF  benchmark,  and  ensured  stronger  ESG  alignment  of  the  portfolio.  While 
conditions in early 2023 have remained challenging, the CPF has weathered the market changes 
of 2022 and is now well-placed to recover lost value over the coming years. 

market  data,  long-term  views  gathered  from  various  investors  and  internal  views  on  volatility  and 
correlations in the coming years. 

(32) The return on the portfolio that will be realised if all bonds are held to maturity (at which point they are 

redeemed at par). 

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