Taipei-based investment manager Yuanta Securities has launched the first ETF in Taiwan to explicitly incorporate environmental, social, and governance (ESG) selection criteria.
The fund is the first ETF listed in Taiwan to directly incorporate ESG screening into its selection criteria.
The Yuanta FTSE4Good TIP Taiwan ESG ETF (00850 TT), listed on the Taiwan Stock Exchange (TWSE), provides exposure to Taiwanese equities from firms with robust ESG profiles.
The fund comes with a management fee of 0.45%.
Julian Liu, Chairman of Yuanta Securities, commented, “According to the Global Sustainable Investment Alliance (GSIA), by the end of 2018, global sustainable investment amounted to more than $50 trillion within which the growth rate of ESG integration into investment portfolios is the fastest.
“Yuanta hopes to provide a unique product, both to support and highlight the companies that meet the globally recognized ESG standards in the domestic market, and to provide investors with further options in sustainable investment.”
Methodology
The fund is linked to the FTSE4Good TIP Taiwan ESG Index, created by leading index provider FTSE Russell in partnership with TWSE.
The index screens the universe of Taiwan-listed stocks using the FTSE4Good rating methodology to identify companies that are better able to manage ESG risks.
Companies engaged in certain activities deemed undesirable from an ESG perspective, such as weapons or tobacco manufacturing, or those embroiled in ESG-related controversies are automatically excluded.
Firms with negative twelve-month return-on-equity are also removed from the selection pool.
The methodology then assesses the remaining companies based on over 300 indicators, both qualitative and quantitative, covering 14 themes which include, among others, health and safety, labour standards, human rights, water use, biodiversity, climate change, tax transparency, and anti-corruption.
The indicators are combined to produce three scores for each firm based on each ESG pillar. Collectively the three pillars produce a total ESG score for the firm between 0-5. Companies with a score of 3.2 or higher are selected for inclusion in the index.
Constituents are weighted by free float-adjusted market capitalization subject to an individual cap of 30%, and the index is reconstituted and rebalanced semi-annually in June and December.
The ESG screen results in an index consisting of 73 constituents, compared to 91 for the broad-market FTSE Taiwan RIC Capped Index.
The main sector difference between the two indices is that the ESG index comes with a higher allocation to technology stocks at 44.3%, compared to 36.1%. The next largest sector weights are financials (21.5%) and industrial goods & services (11.7%).
Taiwan Semiconductor is currently breaching the semi-annual cap with a weight of 32.0%, highlighting a significant level of idiosyncratic risk within the index.