Joint application of Cost-Utility Analysis and Modern Portfolio Theory to inform investment decision processes in a changing climate

High nutrient loads, which damage ecological assets, are a widespread problem for many Australian river catchments. These negative effects can be mitigated by land use changes and/or intervention measures such as the construction of artificial wetlands and water treatment plants. Usually budget constraints limit the number of measures that can be implemented by the catchment management authority. This creates a selection problem: to maximise the total water quality benefits subject to a budget constraint. Here we present a case study from the Ellen Brook catchment in Perth, Western Australia where cost utility analysis (CUA) and subsequent combinatorial optimisation is applied to determine an optimum portfolio of intervention sites. We furthermore apply modern portfolio theory (MPT) and demonstrate how MPT and CUA can be jointly used to take into account aspects of climate change. We find that the methodologies represent auditable ways to determine a robust project portfolio and help to inform environmental investment decision processes.