Director sentiment soars as climate change remains a top issue

The Australian Institute of Company Director’s (AICD) latest Director Sentiment Index (DSI) has revealed that sentiment is at its highest point in three years. Sentiment has climbed more than 45 points since September last year to positive 7.2.

More than 1,500 directors were surveyed for the first DSI of 2021, which was compiled by research firm IPSOS. 

While the overall outlook from directors is positive, COVID-19 remains the main economic challenge currently facing Australian business, with 41 per cent listing the pandemic as a key challenge, followed by global economic uncertainty and climate change.

AICD CEO and Managing Director Angus Armour said, “Although the challenges of COVID-19 continue to impact our way of life, Australia’s ability to control outbreaks, compared to other countries, is helping to bolster positive sentiment.

“Significantly, the jump between sentiment at the last index, taken in September last year, and now, represents the largest movement, up or down, in the history of the DSI.”

After a year of COVID-19, directors’ assessment of the current health of the Australian economy is positive, as is outlook of the economy over the next 12 months.

Expectations of the Asian, Chinese, European and US economies are all more positive than pre-COVID conditions, however outlook for the European economy is currently still low.

Directors have once again nominated climate change as the number one priority the Federal Government should address in both the short and long-term.

Directors viewed the response to climate change of business and community organisations as stronger than that of State and Federal Governments.

Notably, 77 per cent were in support of establishing clear five-year emissions reductions targets to provide a clear pathway to the longer-term net zero goal.

As well, more than half of respondents consider climate change a material risk to their organisation.

Mr Armour said, “Directors clearly perceive that climate change risk is not a niche issue only relevant to some sectors, with the challenge now a mainstream item on boardroom agendas.

“It is telling that despite Australia’s continued COVID-19 related challenges including the vaccine roll-out, border closures and lockdowns, as well as much worse conditions globally, directors continue to identify climate change as the top issue for the Australian Government to address.”

The AICD’s Chief Economist, Mark Thirlwell, said, “Overall, the improvement in director sentiment is underpinned by a big increase in business conditions along with a marked improvement in economic indicators. 

“The DSI is consistent with other respected business indicators, which have also been suggesting that there’s a lot of optimism around at the moment.”

The Index also revealed that the impact of COVID-19 has fallen from being the top issue “keeping directors awake at night” dropping from 68 per cent, this time last year, to 24 per cent of responses.

Sustainability and long-term growth prospects now take top spot with COVID-19 now in joint second place with cybercrime.

Mr Armour said, “Obviously the pandemic is still very much front of mind for directors, but instead of being all-consuming, they are now also focused on other risks.

“It’s quite striking that COVID-19 is now on par with cybercrime as an issue keeping directors awake at night, with experts attributing the rise in breaches on our work-from home revolution.”

Other key findings from the Director Sentiment Index (First Half 2021) include:

• Directors across all states are more positive about both the current and future economic outlook.
• Directors in Western Australia are most positive about the economic outlook of their state in the next 12 months, followed by NSW, Tasmania and Victoria. Only the Queensland and South Australian economies are viewed negatively over the next 12 months.
• There is a significant increase in directors expecting their business to grow in the coming year, up from 42 per cent (last September) to 62 per cent.
• Confidence in business outlook has returned, with 50 per cent feeling optimistic compared to 21 per cent last DSI, and 12 per cent pessimistic compared to 45 per cent.
• 61 per cent of directors feel that government spending on infrastructure is too low.
• The majority of directors feel that their board is trying to affect some culture change, with only 12 per cent stating that their board is taking no effort to effect culture change within their organisation.

Download a copy of the report here.

Media Contact: Maegen Sykes 0439 167 567