Diversification of forestry portfolios for climate change and market risk mitigation

Investments in forestry are long-term and thus subject to numerous sources of risk. In addition the volatility from markets, investments directly exposed future impacts climate change. We examined how diversification forest management regimes can mitigate expected risks associated with activities New Zealand based on an application Modern Portfolio Theory. Uncertainties responses Pinus radiata (D. Don) productivity change, 2050 2090, were simulated 3-PG, a process-based growth model, scenarios Representative Concentration Pathways (RCPs). Future timber market RCP-specific projections Global Timber Model historical log grade prices. Outputs 3-PG combined compute annualized returns for four P. 2050–2090. This information was then used construct optimal portfolios that minimize investment risk given target return under different RCPs, scenarios. While current largely homogenous, our results suggest regime imposed by change uncertainty. Nevertheless, portfolio compositions varied substantially across range objectives. The this framework help managers better account their decisions.