You must be green - and squeaky clean

FOR MANY people under 45, the Body Shop is an icon for ethical business. We want to believe we are giving pride and food to an Amazonian tribe by buying our unwrapped soap there. We want to believe we are saving a tree by taking it away in a recycled paper bag. The leaflets say 'save and recycle' at the bottom. Most of us don't, of course, but we feel a warm glow because we believe that most other Body Shop customers will send them away to be turned into brown bags or egg boxes.

We want to believe Body Shop is green and responsible, as well as commercially successful, because then we can hold it up as a beacon to the rest of industry and ask: 'Why can't you be like that?'

Now, however, the Body Shop is at the centre of a row after an American investment analyst last week warned clients that its 'green' credentials were about to be challenged in a major investigative magazine article.

The Body Shop concept that followed Anita Roddick's idea in the mid-Seventies was timely and brilliantly targeted, even if not entirely original. (Two Californian women came up with the same name five years earlier, opening their first store in what was once a garage with a body shop. It was the same source of inspiration that gave Roddick her idea for her company's name, according to her autobiography.)

Suitably for a concept born out of California's beach philosophy, Body Shop has found itself riding a swelling cultural wave. Its homespun, back-to-nature marketing was a fringe, almost hippie, concern when it began in 1976. But with the passing years it has moved into the mainstream of concern for the environment, diminishing natural resources and our fellow man.

Other multinationals have tapped into the trend. In the Eighties, Ford and Barclays halted investment in South Africa. The birthplace of apartheid had not suddenly become more evil but merely unfashionable. The agrochemical giant Fisons has stopped extracting peat from Areas of Special Scientific Interest. More recently, cross-Channel ferry companies and British Airways have ceased transporting live farm animals, more out of a sudden dawning of the unpopularity of this practice with customers than from a change of heart on animal rights. The Co-operative Bank has jumped on the bandwagon, pledging in its latest advertising that it will refuse loans to oppressive regimes.

If the Body Shop had stayed in Britain, it might have surfed along unquestioned, but in the late Eighties the company entered the United States, where idealism takes a peculiarly zealous form. No one in the US does anything by halves. When they encourage car sharing, they block off whole lanes of freeways for sharers. When they oppose smoking, they stamp it out in all public places. There may be a fundamental hypocrisy in all these environmental concerns - they continue to use cars and build roads. But they have adopted the same approach to business as to the internal combustion engine, and the result is ethical investment: capitalism with a catalytic converter.

Market analysts seek out firms that are ethically sound. From these, investment fund managers pick the potentially successful ones. The managers have tapped the same vein as the Body Shop. So far their ethical investments performance record is better than the average fund, perhaps because analysts look so closely at the firms before they invest.

Once people start asking moral questions, they find that the dilemmas extend well beyond environmental concerns. In Britain, many funds have decided that any company not exploiting animals, selling arms, making tobacco or nuclear products is acceptable. In the United States, there is a code of conduct for business practice. Firms are judged on how well they treat employees, how open they are about their activities, how promptly they pay suppliers and how quickly they reply to customers' letters.

And in this climate of higher standards of propriety, an American investigative journalist, Jon Entine, has spent a year looking into the Body Shop, comparing its performance with the ideals it proclaims. A dossier he compiled on the company's relations with its franchisees, trade with the Third World and pollution controls is due to be published this month.

Entine's investigations are making the Body Shop uneasy. Because it has retained its small, entrepreneur-led structure from its founding days in England, the company has failed to respond to Entine in the way General Motors or ICI would, with a battery of counter-statistics and counter-arguments. It has never revealed, for example, what component of its products are bought from the Third World through its 'trade not aid' fair-dealing schemes. Body Shop does not advertise, but relies on favourable public relations (which it spends a lot of money encouraging).

Ethical fund managers on both sides of the Atlantic are waiting to see if Ms Roddick is able to answer Entine's charges. They, and the Body Shop, know how much is at stake.

In the US, research has shown that a company's share price drops by an average of 0.43 per cent - small, but not insignificant - in the week following the announcement of an environmental violation. That figure includes pariah industries - drug companies, cigarette manufacturers and nuclear waste exporters, for example. Think how much more is at stake for the Body Shop, which has made wholesomeness a marketing principle. The company's share price fell 10p after a warning from an analyst in the United States last week that Mr Entine's research was about to be published.

But the question that will be worrying the Body Shop is how much its customers will be affected by any tarnishing of its image. They clearly love the products for themselves, not just the image. Would a few spillages of industrial quantities of shampoo into a river be enough to make them give up their aloe vera moisturiser, or would critics need to be able to find a smoking rabbit, in the form of animal cruelty, before the masses stop giving Body Shop the benefit of the doubt?

(Photograph omitted)