Using portfolio theory to guide reforestation and restoration under climate change scenarios

Abstract

The general problem addressed by this study is that of designing a decision support system for planned adaptation to climate change that uses the principles of modern portfolio theory to minimise risk and maximise return of adaptive actions in an environment of deep uncertainty over future climate scenarios. Here we show how modern portfolio theory can use the results of a climate change impact model to select an optimal set of seed sources to be used in regenerating forests of white spruce in an environment of multiple, equally plausible future climates. This study shows that components of solutions are not selected to perform equally well across all plausible futures; but rather, that components are selected to specialise in particular climate scenarios. The innovation of this research rests in demonstrating that the powerful and widely used principles of quantifying and planning for risk and return in the uncertain environment of asset markets can be applied successfully to serve the objectives of planned adaptation to climate change.