CSR gives Forest City Enterprises a ratings boost

Shift Happens

CSR gives Forest City Enterprises a ratings boost

Lego graph photo by Loskutnikov via Shutterstock

Part of the business case for publishing a corporate social responsibility (CSR) report is to improve transparency, enabling stakeholders to better understand a business and how it positively affects employees, customers and communities while delivering shareholder value.

Companies often illustrate long-term trends such as increased stock prices or lower employee turnover to prove the value of CSR and transparency. It is rare, however, that a company has the opportunity to cite a CSR report as the key piece of evidence for an immediate improvement in how external stakeholders view it. But for one company, that's exactly what's happened.

Forest City's CSR success

Forest City Enterprises is an owner, developer and portfolio manager of premier commercial, residential and retail properties with its headquarters in Cleveland, Ohio. Forest City has a strong foundation of CSR without calling it by name. It is how the company does business and maintains a seat at the table in the communities in which it operates.

For the first time, Forest City is sharing its story and communicating progress through a report using Global Reporting Initiative (GRI) guidelines, allowing the company to demonstrate its long-term commitment to CSR. With the release of its first CSR report, Forest City began sharing with stakeholders its journey toward CSR and sustainability.

The report garnered more than the attention and praise of many stakeholders -- it also directly supported an increase in Forest City's rating from a key investment research firm. Information about Forest City's initiatives and commitment to responsible business practices improved the company's MSCI Intangible Value Assessment rating, rising from a BB to an A in a single review period.

The MSCI Intangible Value Assessment is a comprehensive review of a company's risks and opportunities beyond those typically examined in traditional financial analyses. Using industry analysis and peer benchmarking, MSCI evaluates a company on many Environmental, Social and Governance (ESG) factors. The resulting ratings range from AAA on the high end to CCC on the low. Forest City's rating signifies an increase of two levels, representing a virtually unprecedented accomplishment for the company and reinforcing the importance of its commitment to CSR throughout its mission and core values as an organization.

"We have been strengthening our CSR programs and improving our internal reporting for the past several years, so it was a very pleasant surprise to see how simply telling our story -- being transparent and using the widely accepted GRI framework -- made such a difference in our rating," said Jill Ziegler, sustainability manager at Forest City Enterprises.

The CSR and transparency ratings game

In the vast and ever-expanding sea of sustainability ratings and rankings, two overarching themes emerge: transparency and performance.

Some ratings assess a company purely on the level of information that it publicly discloses. Others, such as the MSCI Intangible Value Assessment, examine the performance of a company based on its policies and practices. Nevertheless, performance measurements largely depend on the level of transparency demonstrated through public reporting, and companies are rewarded for their disclosures. Because MSCI uses industry analysis and peer performance to determine an individual company's rating, it needs to be able to make comparisons across ESG data points.

Being able to easily locate and understand Forest City's ESG data was undoubtedly an important component of the rating process. Forest City, like many other CSR leaders, uses the GRI guidelines to ensure that all the information that it discloses is well-organized and accessible for readers. Transparency and performance go hand-in-hand, and Forest City's new MSCI rating demonstrates that this is a winning combination with stakeholders and research firms alike.

What companies can learn from Forest City

Although it may be difficult to demonstrate a direct link between ESG ratings and a company's financial performance, financial analysts and investment managers are placing new importance on ESG data, and the influence of this type of data in decision making is experiencing an upward trend. The average investor pulls information from a variety of sources to make an investment decision, and ESG metrics are increasingly becoming a part of the standard set of factors examined by the mainstream participants.

The emergence of a new framework from the Sustainability Accounting Standards Board (SASB) is also encouraging the disclosure of ESG data directly in company 10-K reports and other U.S. Security and Exchange Commission (SEC) filings. Several large corporations, as well as major financial exchanges, including NASDAQ, support the implementation of the SASB framework and increased disclosure of non-financial performance.

As companies begin to adopt the SASB framework, we will continue to see the emergence of even more ESG data, as well as increasing interest from financial stakeholders, especially investors. Staying on top of ESG ratings is important, and Forest City is demonstrating that it is ahead of the game.

Lego graph photo by Loskutnikov via Shutterstock