Presentation on socially responsible business investment, topics including: research, trends, history, screening, and analysis. Learn more about Sustainable Business & Design at: http://sustainablelifemedia.com

1. Capital Flow &
Sustainable Brands:
How Investors are Driving
New Opportunity

2. Maria Kamin
Product Manager, Research

3. Responsible Investment
"We are proud to endorse the Principles, which recognize that social and environmental issues can be material to
the financial outlook of a company and therefore to the value of our shares in that company,”
- Denise Nappier, Treasurer of the State of Connecticut

4. The U.S. SRI Market
 Socially Responsible Investing (SRI) is an investment
process that considers social and environmental
consequences of investments, both positive and negative,
within the context of rigorous financial analysis.”
 Origins lie in 18th century Quaker investors
 Today’s investors include:
Source: Social Investment Forum 2007 Report on Socially Responsible Investing Trends in the United States – March 2008

5. The U.S. SRI Market
 Today, $2.71 trillion market in the US (March 2008)
 Total SRI assets represent ~ 1 in 9 dollars under professional
management in the U.S.
 Growth rate of SRI asset flows has exceeded non-SRI growth rates. From
1995-2007, total SRI assets rose 324% while total assets under
professional management increased 260%.
Source: Social Investment Forum 2007 Report on Socially Responsible Investing Trends in the United States – March 2008

6. SRI Practice: Screening
Screening is…
…avoiding companies with poor ESG track records,
…positively filtering a portfolio for companies that have stronger CSR
policies and practices, or
…otherwise incorporating ESG, CSR, and sometimes ethical factors into the
process of investment analysis, decision-making and management
Examples of Screening:
•ESG Issues: Discrimination, Employee & Product Safety
•Divestment: Sudan, Iran
•Best-in-class: Industry leaders
•Industry Restrictions: Healthcare
•Harmful Products: Tobacco
•Convention Compliance: Global Compact, ILO
•Religious Concerns: Christian, Jewish, Islamic
•Controversial Business Practice: Retail marketing of alcohol
•Other special concerns: Animal Welfare
Source: Social Investment Forum 2007 Report on Socially Responsible Investing Trends in the United States – March 2008

7. SRI Research
• KLD covers 4,000+ global firms
• Environmental, Social & Governance
(ESG) coverage includes:
– Climate change
– Alternative energy
– Human rights
– Supply chain
– Workforce diversity
– Political accountability
– Transparency
• 280+ datapoints collected per
company
• 70 scored indicators

8. Brand as a Factor
• Importance of brand is reflected in several
areas of KLD’s CSR coverage:
– Employees: Retention & hiring risks ST/ LT
– Customers: Sales & competitive risks ST/ LT
– Communities: Implementation risk ST/ LT
– Investors: Valuation risk ST/ LT
– Goodwill: Acquisition valuation risk LT
• Example: Nike

9. Valuing Brand with CSR
• Using KLD research, CoreBrand has done analysis to better understand how
CSR issues impact the brand
• CSR is one of the positive drivers of Brand Power
• Of the factors CoreBrand studied CSR was the only favorability
measure to grow in importance over time from 2003 - 2006
• Percentage of the variance in Brand Power can be attributed to KLD’s
CSR data
• Can estimate the value of CSR issues to an individual company through their
brand equity model
• Failure to deliver on important CSR messages will result in a diminished
investment potential

10. CSR & Brand: Best Practice
• Transparency & Disclosure “We’ve been amazed by the
– Learn what’s in order at your house volume of positive,
• Past, present and goals thoughtful comments from
• Positives & negatives Xerox people worldwide
– Avoid green washing after we released our first
comprehensive global
citizenships report last
• Engage Your Stakeholders year… We’ve learned that
– Stakeholders: Shareholders, Communities, not being shy about telling
Employees, Customers, etc. our CSR stories resonates
– Look for internal CSR champions incredible well with
– Incorporate CSR into the corporate culture employees.”
• Metrics -Hector Motroni, Chief
– Clarify & reuse your baseline Ethics Officer, Xerox
Source: The CRO Magazine,
– Meet minimum standards (GRI) www.thecro.com
– Focus on Key Issues for your industry
– Measure impact
– Improve performance over time

11. Ben Allen
Director of Research

12. Firm Overview
• Research-centric boutique Mid-Cap Fund Workplace Fund
Small-Cap Fund
• Bottom-up research Fixed-Income
Fund
Parnassus Fund
• Fundamental analysis
• Value-based investment approach
• Attention to risk in portfolio construction
• Corporate social responsibility
• Established 1984 and privately
owned Equity Income
Fund
• Boutique culture Fund Assets in $MM % of Total
– In-depth, in-person fundamental research Equity Income Fund 926.8 72.0%
Parnassus Fund 256.3 19.9%
– Dedicated & responsive client service Fixed-Income Fund 87.0 6.8%
Small-Cap Fund 7.1 0.5%
• 26 employees Mid-Cap Fund 5.6 0.4%
– 8 investment professionals Workplace Fund 4.2 0.3%
Total net assets: 1,287.0
– 18 support personnel As of 3/31/08

13. Environmental, Social & Governance Assessment:
The 3 P’s
1. Product / Service
2. Production / Operations
3. Planning

14. Where do we look for ESG information?
Sources Verification
• CSR/Sustainability Reports • KLD Research
• SEC filings • David Gardiner & Assoc.
• Corporate website • More Management Interviews
• Management interviews • Third-party audits
• Sell-side ESG research • NGO & SRI collaboration
• Government data • Sector surveys
• Social networks

15. • Industrial property developer and owner
• Strong connection between business goals and CSR goals
• Branding through case studies, Sustainability Report, websites
• Third party recognition for efforts

16.  Country’s largest waste services company
 Public trust, sustainable services are crucial for business
 Branding through TV advertising, Sustainability Report, websites
 Uses specific numbers to drive home sustainability commitment
www.thinkgreen.com
www.wmgreensquad.com

17. Lloyd Kurtz
Senior Portfolio Manager

18. A Case Study in Reputational Risk
At the Center…
Stakeholder theory can be
viewed as a constellation of
‘Hirschman relationships’
between a Control Group and
a variety of groups...
CONTROL
GROUP
(MGMT)

19. Commercial Relationships
CONTROL
GROUP
"There is only one boss. The customer. (MGMT)
And he can fire everybody in the company
from the chairman on down, simply by
spending his money somewhere else."
- Sam Walton
CUSTOMERS

20. Commercial Relationships
In the 80s and early 90s it
was popular to say that if you
took care of these groups, SUPPLIERS
you didn’t need to worry
about much else.
CONTROL
CUSTOMERS GROUP EMPLOYEES
(MGMT)
SHAREHOLDERS

21. Social/Environmental
Relationships
SUPPLIERS
ENVIRONMENT EMPLOYEES
CONTROL
GROUP
(MGMT)
LOCAL
SHAREHOLDERS
COMMUNITY
GOVERNMENT CUSTOMERS

22. Thomas and Friends Henry the Green Engine
Percy the Small Engine
Thomas the Tank Engine
Toby the Tram Engine
James the Red Engine

23. Wooden Railway
 Good gross margins
 Set above lists for $44.99
 Manufactured inexpensively abroad
 Bright colors, detailing faithful to books and tv show
 Bundled with trading cards
 Sometimes included as a ‘bonus’ with DVD purchase

24. The Company
 Learning Curve was founded in Chicago in 1993
 Key Product Lines
 The First Years
 Lamaze
 Playtown
 Thomas & Friends
 In 2003, Learning Curve was acquired by RC2 Corp (ticker: RCRC)

25. Firm Strategy
 “RC2 builds consumer loyalty by fulfilling the passions of
targeted consumers with branded toys, collectibles, hobby or
infant products that encourage repeat purchases and are fun
to own and use.
 “Our goal is to achieve leadership in targeted markets
worldwide by acting on significant consumer trends,
continuously applying innovation and developing consumer-
preferred brands and products distributed through multiple
channels.”
- RC2 Website, accessed 8/1/2007

26. Four Focus Areas
 “Building our own brands”
 First Years, Lamaze, Learning Curve, and Johnny Lightning
 “Differentiation”
 “…more segmentation, more niche marketing…”
 “Distribution…”
 Including international expansion, Internet distribution, inventory
planning and management.
 “Consumer communication”
 “…the shopper is in more control than ever over where, when, what, and
how the products are being purchased.”
Excerpted and adapted from Streetevents transcript of Feb. 13, 2007 earnings conference call.

27. An Analysts’ View of RC2
“Management’s consistent track record of
solid execution (securing new licenses and
developing new products) along with past
acquisitions, gives us confidence that core
revenues and EPS growth is sustainable in
the 5%-10% and mid-teens, respectively,
over the next several years…”
- Timothy Conder, A.G. Edwards, January 12, 2007

28. Bad News, 6/13/2007
 “The U.S. Consumer Product Safety Commission, in
cooperation with [R2C], today announced the recall
of the following consumer product. Consumers
should stop using recalled products immediately
unless otherwise instructed…”
 “Name of Products: Various Thomas and Friends™
Wooden Railway Toys” [1.5 mm units]
 “Hazard: Surface paints on the recalled products
contain lead. Lead is toxic if ingested by young
children and can cause adverse health effects.”

29. An Incident in China
 “A manager at the RC2 factory detained a
New York Times reporter for more than nine
hours after he had been admitted to the
premises by security guards to ask questions
about the operation…”
“RC2’s Train Wreck”, The New York Times, 6/19

30. Analyst Comment
 “These recalls happen fairly often. It’s when
the recall becomes botched and children are
hurt when it takes on a life of its own… [This
recall] should not have any long-term
damage.”
“RC2’s Train Wreck”, The New York Times, 6/19

31. 25
30
35
40
45
50
12/29/2006
1/5/2007
1/12/2007
1/19/2007
1/26/2007
2/2/2007
Effects
2/9/2007
2/16/2007
2/23/2007
3/2/2007
3/9/2007
3/16/2007
3/23/2007
3/30/2007
4/6/2007
4/13/2007
Product Safety Commission.
4/20/2007
4/27/2007 with metal train toys.
5/4/2007
5/11/2007
6/13 – Joint press release w/ Consumer
5/18/2007
5/25/2007
6/1/2007
6/8/2007
7/4 – Lawsuit alleges lead paint problems
6/15/2007
8/1 - Disappointing
6/22/2007
6/29/2007
revenues and earnings.
China factory
7/6/2007
7/13/2007
RCRC: Spot the Reputational
7/20/2007
7/27/2007
6/19 – New York Times
story: reporter detained at
8/3/2007

32. Subsequent Performance
Indexed Price
25-May-2007 to 28-May-2008 (Daily)
25-May-2007=100; Local
RC2 Corp. (RCRC) 43.2 S&P 500 (SP50) 91.3
100
90
80
70
60
50
40
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
Data Source: Prices / Exshare ©FactSet Research Systems 2008