How Taipei Exchange is Leveraging Entelligent Technology for Climate-Resilient Stock Selection
The TPEx FactSet Smart Climate Index Series, launched by the Taipei Exchange in September 2023, is Taiwan’s first pure climate benchmark and index series. To meet the technical challenge of designing its climate-resilient indices, TPEx partnered with FactSet for global distribution and with Entelligent for best-in-class energy and climate transition risk analytics.
The series kickoff comes as the world continues to grapple with the role businesses and investors can and should play in preparing for the transition to a low-carbon future. Among other things, the past year has exposed the shortcomings of traditional, sector-exclusionary investment approaches. “Green Investors Were Crushed,” a Dec. 5 Wall Street Journal headline said. “Now It’s Time to Make Money.”
For TPEx, the Smart Climate Index Series offers investors an opportunity to gain insight into energy transition risk and invest in a better future.
The TPEx approach looks beyond traditional exclusion approaches — in which, for example, all “dirty” industry stocks might be excluded, even at the risk of sacrificing portfolio diversification. Instead, TPEx turned to Entelligent’s T-Risk model to discern index constituents’ transition readiness. In addition, for two of three indices in the series, it adopted a thematic focus on Semiconductor industry stocks — a stronghold of the Taiwanese economy even if not always the most energy efficient industry.
The three new indices’ real-time calculation and dissemination began on Sept. 25, 2023. They include:
- TPEx FactSet Climate Resilience Index (IX0201)
- TPEx FactSet Semiconductor Climate Resilience Index (IX0202)
- TPEx FactSet Semiconductor Climate Net Zero Elite Index (IR0203).
Stock Selection Methodology
The TPEx FactSet Index Series is compiled by the exchange and by FactSet UK Limited. The universe for all three indices is the TPEx 200 index — Taiwan’s small and midcap benchmark — with selection and weight-adjustment using Entelligent’s T-Risk energy and climate model, and other criteria. The T-Risk scores ensure the best-prepared, most resilient constituent companies are included.
For the TPEx FactSet Climate Resilience Index, the starting universe is the entire TPEx 200 Index. For the TPEx FactSet Semiconductor Climate Resilience Index, constituents are selected from among TPEx 200 companies in the RBICS Semiconductor Equipment and Services & Semiconductor Manufacturing category.
The TPEx FactSet Semiconductor Climate Net Zero Elite Total Return Index likewise starts with the semiconductor subset, but then applies other criteria including minimum daily trading volume. It has a fixed number of constituents.
Each index applies the T-Risk filter at a different level of the selection process. A more detailed description of the index rules is available at the TPEx website.
T-Risk’s underlying methodology delivers data analytics that unlock not just downside risk but also upside opportunity. It begins with energy and climate science, applies machine learning and statistical analysis to identify the most influential energy factors, and then applies that data to fundamental and market data to analyze performance across climate scenarios.
This approach generates predictive investment return metrics that are standardized and optimized for financial applications. T-Risk’s broad global coverage further equips it for the partnership with TPEx.