Good Derivatives: A Story of Financial and Environmental Innovation – Book Review

By: Gabriel Thoumi, CFA
November 18, 2012



In Good Derivatives: A Story of Financial and Environmental Innovation, Richard Sandor, PhD has written a rich compelling first-person narrative of the development of financial futures and environmental markets over the past 40 years. With personal stories describing both failures and successes, Dr. Richard Sandor engages us with details that expand our knowledge of the capacities and limitations capital markets present to us in our efforts to finance climate change mitigation and natural resources conservation.

Whether one supports financing climate change mitigation and natural resources conservation via tax, cap-and-trade, government fiat, or are otherwise disinterested, Good Derivatives: A Story of Financial and Environmental Innovation is a must read for the simple reason one can gain a greater appreciation of the thought processes, logic, and vocabulary used by financial innovators that directly led to the creation of the Chicago Climate Exchange, the European Climate Exchange, the Chicago Climate Futures Exchange and the Tianjin Climate Exchange.

Because capital markets, most often indirectly and sometimes directly, fund our climate change mitigation and natural resources conservation activities, we need to become conversant in the vocabulary of these same markets. For example, at an elementary level, both capital markets investments and taxes levied on economic growth fund the grants that pay for our research and our salaries. Yet to understand better how capital markets can serve our climate change mitigation and natural resources conservation agenda, we need fluency of their vocabulary and their ideas. It sometimes can be a challenge to understand the language of other pedagogies we are not trained in and finance vocabulary represents one of these cases. To support more effective communication between capital markets and natural resources conservation, Mongabay.com has published online a REDD+ Finance and Carbon Markets Lexicon in English and Spanish.

This lexicon can assist us as we read Dr. Richard Sandor’s book so that our insights can be more easily attained and then translated across pedagogies, resulting in furthering the critically important effective communication that is needed for us coalesce immediately around mechanisms to finance climate change mitigation and natural resources conservation.

Admittedly there is much distrust of markets and valuable lessons that need to be learned, for ample and self-evident reasons, and Dr. Richard Sandor discusses these throughout his book culminating in the final chapter where he describes the seven stages of market development. He explains how financial innovation is a discrete and distinct concept from the malfeasance of fiduciary duty that has recently impacted global markets. He explains how financial innovation has helped us fund financing of climate change mitigation and natural resources conservation through public-finance and private-finance mechanisms while fraud is simply a separate issue. Clearly understanding this distinction, as demonstrated through examples presented throughout the book, will make our engagement in markets to finance climate change mitigation and natural resources conservation all the more wiser, effective and simpler.

In conclusion, Dr. Richard Sandor describes throughout Good Derivatives: A Story of Financial and Environmental Innovation the significant social good for the environment that can be created through transparent and well-regulated markets. As he eloquently describes in detail we can harness “good derivatives” to finance our climate change mitigation and natural resources conservation agendas.



How to order:

Good Derivatives: A Story of Financial and Environmental Innovation
Author: Richard Sandor, PhD
Publisher: Wiley
ISBN: 978-0-470-94973-3
Foreword is written by Nobel Laureate in Economics Ronald Coase



Gabriel Thoumi, CFA, Climate Bonds Initiative Advisory Panel, is also a natural resource scientist.















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CITATION:
By: Gabriel Thoumi, CFA (November 18, 2012).

Good Derivatives: A Story of Financial and Environmental Innovation – Book Review.

http://news.mongabay.com/2012/1118-thoumi-good-derivatives.html