Welcome

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1 The Body Shop Values............................................................................................. 1.1 Welcome from The Body Shop Chairman and CEO.................................................................

2.Overview……………………………………………………………………………………………………

2.1 Comment from Jean Paul Agon, CEO , L'Oreal 2.2 Report commentary by The Body Shop Stakeholder Panel 2.3 Who we are 2.4 Governing Values 2.5 Our stakeholders 2.6 Our Values Strategy 2.7 Our community involvement 2.8 Stakeholder comment from The Body Shop Head Franchisee in Indonesia 2.9 Stakeholder comment from The Body Shop Regional Director for UK/ROI

3 Against Animal Testing............................................................................................ 3.1 The Body Shop, our Against Animal Testing Policy and L’Oréal .............................................. 3.2 REACH and animal testing ....................................................................................................... 3.3 Stakeholder comment from the British Union for the Abolition of Vivisection............................ 3.4 100% Vegetarian ......................................................................................................................

4 Support Community Trade....................................................................................... 4.1 Celebrating Community Trade with old and new suppliers ....................................................... 4.2 Principles and challenges of Community Trade........................................................................ 4.3 Stakeholder comment from Divine Chocolate...........................................................................

5 Activate Self-Esteem ................................................................................................ 5.1 Wise Woman™......................................................................................................................... 5.2 Stakeholder comment from a The Body Shop At Home Consultant ......................................... 5.3 Employees................................................................................................................................ 5.4 Stakeholder comment from an employee representative..........................................................

6 Defend Human Rights .............................................................................................. 6.1 What does Defending Human Rights mean for our suppliers? ................................................. 6.2 Stakeholder comment from Oxfam ........................................................................................... 6.3 Spray to Change....................................................................................................................... 6.4 Campaign partner comment from MTV Networks International ................................................ 6.5 Stop Violence in the Home ....................................................................................................... 6.6 Campaign partner comment from UNICEF...............................................................................

7 Protect our Planet..................................................................................................... 7.1 Addressing Climate Change .....................................................................................................

7.2 Stakeholder comment from Greenpeace .................................................................................. 7.3 Sustainable Ingredients – a campaign for forests, wildlife and decency ................................... 7.4 Chemicals................................................................................................................................. 7.5 Packaging – exploring routes to minimal waste ........................................................................

8 . Glossary and definitions

9 Targets and commitments overview ...................................................................................

10. About this report

11. GRI Index 12.Archive

13. URS Technical briefing ....................................................................................................

Welcome to our Values Report 2007

Welcome from The Body Shop Chairman and CEO

The Body Shop was born challenging the status quo and creating positive social change. It is what makes it as exciting today as it was when it was founded 30 years ago. Since our last Values Report two years ago, The Body Shop has grown to include online shopping, moved into a number of new markets and come under new ownership and our Values commitments have grown with these changes. Our ‘Stop Violence in the Home’ campaign is now running in 47 markets and has raised over £2 million to help victims of domestic violence. We have also strengthened the way our Values are embedded in our products and ingredients by adding new suppliers to our Community Trade programme, which ensures a fair deal for marginalised small-scale producers, through a greater commitment to animal protection and by taking a leading role in getting sustainable palm oil on the market, which helps protect local communities, rain forests and wildlife. We are also taking up the challenge of climate change. In the past, The Body Shop has campaigned on renewable energy and invested in wind farms, but we know that this is an area where we have some catching up to do, if we are to really make a difference to global warming. Every one of the initiatives in the report is a source of pride and the result of the total commitment from every person that works here to make the Company a different place to work than any other. We want to lead by example, and the men and women on the Executive are recruited both for their professional capability and for their ability to develop cutting edge solutions to real social and environmental problems. Everyone on the Executive is passionate about delivering a commercially successful company that has Values at its heart, and in this report we have asked each of them to say very clearly what the Values mean to them and how they each play their part in leading the Company to achieve even more. From our economic success we can create more benefits for our local communities and offer our customers products that are less harmful to the environment than many alternatives. Values are part of our everyday business, they are not a separate set of rules that only apply when we choose, and we are always looking for new ideas to take to our customers and employees to remind them of what we stand for. Whether it is the success of our Community Trade programme, new initiatives to save energy, or our

precautionary and proactive chemicals policy, we use our Values to guide our decision making to make sure that the impact we have today does not reduce the ability of future generations to act in the best interest of their communities or the natural environment. We know we do not have all the answers. We need the views of others and we have to work in partnerships to really make a difference. Throughout the past years, we have welcomed strong and continued support from our stakeholders. In this report, we wanted to give them an opportunity to express their views and to help us make sure that we address the issues that really matter to people outside as well as inside the Company. We are grateful that they are helping us provide clear direction to ensure that we continue to be responsive to the social and environmental concerns of our customers. Our Values are not just things we do, but who we are. Being an employee, a consultant or a franchisee here is to make a difference every day. The achievements and aspirations in this report are a result of our people’s passionate work and our customers’ dedicated support. Whether we operate in new areas of the world, through new channels or under new ownership, Values is in our DNA and we will continue our efforts to make a difference. Adrian Bellamy, Chairman Peter Saunders, CEO

Comment from Jean Paul Agon, CEO , L'Oreal

It is now more than a year since L'Oréal announced its acquisition - in March 2006 - of The Body Shop International plc (The Body Shop). That announcement was only possible because there existed, on both sides, a deep rooted and shared belief in the strength and importance of The Body Shop Values: Values that have stood the test of time for more than thirty years. The major shareholders and management team of The Body Shop were, at that time, convinced of the sincerity of L'Oréal's commitment to stakeholders: to ensure that The Body Shop Values would be entirely upheld. Their belief in that commitment remains as strong today as it was then. What is different, one year on, is that we are now able to prove the depth of the commitment we made. The Body Shop has not been folded into one of L'Oréal's four business divisions. It is a separate business unit, with the excellent management team remaining in place, reporting directly to myself. Ensuring continuity of the management team was an important initial step to ensuring continuity in upholding the Values. As The Body Shop publishes its first Values Report since its acquisition by L'Oréal, I would like to take the opportunity to reassure all of its readers that it remains the intention of L'Oréal not only to preserve the integrity of The Body Shop Values but to continue to nurture them for the benefit of all. At L'Oréal we have tremendous respect for the Values of The Body Shop and we have already started to look at ways in which other L'Oréal group brands can benefit from the long experience of The Body Shop. I also know how important those Values are to you and I assure you that we have no intention of changing them or of standing in the way of their development and the important role they play. I hope that, after one year, we have demonstrated the sincerity of our actions and that we will continue to persuade all our stakeholders that the promises we made on 17 March 2006 were for real. L'Oréal has its own deep-rooted values that have evolved over almost 100 years. The Values of L'Oréal and The Body Shop are not identical; but certainly they are aligned in terms of their strength of

belief in and commitment to an ethical business model. Ours is a partnership where each partner fully respects the other for its similarities and differences; and therein lays its strength. I am encouraged to see that through this report The Body Shop continues to deepen its engagement with its stakeholders. This engagement and the dialogue that often ensues is a vital part of the identity of The Body Shop and will not be changed. The Body Shop is now an important part of the L'Oréal family and it is my goal that together we build a 'world-citizen' company that is a benchmark in terms of sustainable development, as befits the world's leading beauty company: a company that does not focus solely on its own success, but one that cares for its environment, is concerned by the great challenges of its time and is deeply respectful of difference. Jean Paul Agon, CEO, L’Oréal

Report commentary by The Body Shop Stakeholder Panel

The stakeholder panel was invited by The Body Shop to comment on the 2007 Values Report. As a group, we represent external and internal views, commercial interest and campaigning agendas. With so many different points of view involved, we found it a challenging task, but in the end we found that we had more common ground than expected. This was achieved because of the willingness of the panel members, and The Body Shop representatives, to be open and frank. We commend The Body Shop for taking this step of entering into an honest dialogue about challenges and opportunities of truly living up to its Values. It has been a valuable process for all of us, and we would encourage other companies to follow this example. Overall, the report is comprehensive and covers issues relevant to The Body Shop. It underlines the importance of The Body Shop as an example of a business that demonstrates that it is possible to have strong ethical foundations and still be profitable. The five traditional Values of The Body Shop contribute to the completeness of the report, as serve as a safeguard to ensure that key ethical issues are addressed, regardless of trends and fashion. The panel recognises that The Body Shop has entered a key period in its development. Firstly, the takeover by L'Oréal in 2006 brought with it inevitable concerns about whether The Body Shop Values would continue to be at the core of its practice. We requested that L'Oréal specifically restated its commitments in the report and that The Body Shop explain some of the mechanisms in place to ensure

its continued adherence to its Values. We feel that this report goes a long way in addressing these questions and are pleased to see that the report now includes a statement from L'Oréal’s CEO. Secondly, where The Body Shop has led – on ethical trade with communities, and environmental responsibility, amongst others – many other businesses have followed. Some of those may be pulling ahead of The Body Shop, and the next few years will be critical in deciding whether The Body Shop retains the energy, imagination and desire to maintain its leadership on all of its Values. We had in-depth discussions on the details of each section, all of which cannot be repeated here. However, general agreement was reached on the following points and recommendations: Against Animal Testing We believe that this value is genuinely part of the DNA of the Company. The Company is continuously safeguarding its systems and remains the leader in this area, and welcomes discussion on key challenges, such as upcoming chemicals legislation in the EU. However, we would welcome a return to stronger campaigning on the issue. While significant progress has been achieved in EU legislation there are still huge challenges in many of the markets where The Body Shop operates, and it is crucial that leading companies continue to challenge the status quo. Community Trade The Body Shop Community Trade programme is a groundbreaking initiative in the cosmetics industry, dealing directly with producers. The programme is unique to The Body Shop, which meant that we had a lot of detailed questions to understand how the producers benefit, and how the Company ensures stability and predictability which is crucial for small-scale producers. We also challenged the Company to regain its leadership on ethical trade. Could purchasing of Community Trade products be linked more directly to profit growth? How can the Company drive demand for Community Trade ingredients and accessories? With so many ethically traded products now available, and so many companies focused on ethical trading, what can The Body Shop learn from others, and what new alliances can be formed? We would like to see more evidence of a personal involvement of the leadership, for example by The Body Shop directors visiting Community Trade producers. Activate Self Esteem Our discussions on this section focused on internal self-esteem issues, such as employee development and diversity. We requested that the Company include more information on its diversity policies, and were pleased to see some data on gender included in the final draft. However, it is not clear what the Company strategy is on encouraging diversity at all levels and we would like to see this expanded even further. On the other hand, we also feel that the Company understates the importance of some of its activities. For many women, working for The Body Shop At Home™ has provided not only a decent living, but a new lease of life. Being a TBSAH Consultant has built confidence and self esteem for many, an opportunity to run their own business and campaign on real and difficult issues. Defend Human Rights The true highlights are the Company’s campaigns on domestic violence and on HIV and AIDS. These are impressive and effective campaigns tackling global difficult issues and truly set the Company apart.

Likewise, we are glad to see that the Company has an externally verified system to safeguard workers in its supply chain based on ongoing audits of suppliers and requirements for improvement plans

to address abuses.

However, this system covers only direct suppliers and does not take into account abuses which might be taking place further down the supply chain, and we would encourage the Company to address this. Similarly, we would like to see the same standards diligently applied to the Company’s own employees – an explicit guarantee that labour rights are guaranteed for everyone working at The Body Shop. This includes employees working for franchisees, as well as an assessment of working conditions for independent The Body Shop At Home™ consultants. Protect our Planet There are clear highlights to The Body Shop environmental performance, such as its commitment to a responsible chemicals policy, sustainable palm oil and FSC. However, the Company was among the first to address climate change through campaigning for renewable energy and even direct investment in a wind farm in Wales. It is clear that the issue has slipped off the Company’s agenda, and the Company is now playing catch-up with other companies who are leaders in the area. We are glad to find that the Company is again focusing on the area, but we are missing real milestones and action points, based on an innovative analysis of what can be achieved by the Company and its franchisees. The Company has set itself a target of becoming carbon neutral by 2010, but we do not see enough detail on how the Company plans to achieve significant reductions in CO2 emissions. The current company strategy is focused on making retail operations carbon neutral. We would encourage a stronger focus on CO2 emissions from product manufacturing and transport and an explicit plan to ensure that franchisees are included in the strategy. In addition, we do not believe that “carbon neutral” is necessarily the right target. It is too easy to achieve this, simply by buying offset. We think the Company should focus all attention on reducing emissions and reach out to its business partners, including suppliers, franchisees and even Community Trade producers to bring about real change. Conclusion This report shows that the Company is still leading the way in a number of areas, most prominently in its continued commitment to prevent animal testing, and also on challenges such as sustainable palm oil, Community Trade and campaigns on important social issues. However, in some areas where the Company used to be leading, we find that the Company has fallen behind other ethical businesses, most notably within the environmental area. We find that this report could provide a more sober assessment of the Company’s current performance in these areas and clearer action points to ensure that it regains some of the lost ground. The Body Shop could show leadership by being more open and honest in documenting some of the real dilemmas it faced in decision-making that allowed it to be both commercial and ethical. There can be real conflicts between profitability and ethics and as one of the early trendsetters in this area, the Company’s thoughts on this could provide a valuable contribution by illustrating that sacrifices and difficult decisions do sometimes have to be made in order to operate responsibly and sustainably. Finally, we would like to see the report have a wider scope, as the report does not cover individual action undertaken at the market level or by franchisees, only those actions that flow from the global policy or direction. On the one hand, this focus does not do enough justice to the leadership shown by some franchisees and markets, and on the other, it does not provide clear evidence that the Company’s policies are always adhered to on the ground.

Overall, the report provides a comprehensive catalogue of achievements, addressing all material issues and a number of key questions posed by us and the stakeholder groups that we represent. We will look forward to seeing The Body Shop remain in the forefront in its strongest areas and regain its leadership in other areas. To drive change in businesses, we desperately need role models – companies that can show what is possible. As representatives of vastly different stakeholders we all want to see The Body Shop succeed in being the model of ethics and sustainability. Please click on a name to see the panel members’ individual comments on The Body Shop Cathie Cornish, The Body Shop at Home Consultant Harry Hughes, Watersmead warehouse/Employee Representative, UK CRC and European Works Council Steve Jennings, Global Advisor Livelihoods, Oxfam GB Alastair Kerr, Regional Director, The Body Shop UK/ROI Suzy Santoso, Head Franchisee, The Body Shop Indonesia John Sauven, Campaign Director, Greenpeace UK Michelle Thew, Chief Executive, British Union for the Abolition of Vivisection Sophi Tranchell, MD, Divine Chocolate Limited Gordon Roddick, Co-Founder of The Body Shop Please click here to see URS technical briefing to the Stakeholder panel

Who we are

The Body Shop International plc is a global manufacturer and retailer of naturally inspired, ethically produced cosmetics and toiletries products, all cruelty free, and many with fairly traded natural ingredients. Founded in the UK in 1976 by Dame Anita Roddick, at the end of 2006 The Body Shop International had 2,265 stores in 56 countries, selling a range of more than 1,200 products. During 2006 we opened a total of 146 new stores, including our first stores in India and Pakistan. As well as selling our products through our stores we also have a direct-selling channel called The Body Shop At Home, where consultants sell products at parties in people’s homes. This operates in four countries – the UK, the USA, Australia and, as of 2006, Germany. Customers can also use our e-commerce websites for online shopping in the UK, the USA, Canada, Australia, Korea and Japan. The Body Shop owns 100% of Soapworks, a soap factory based in Glasgow, Scotland, which represents the only manufacturing facility in the Company. All other product manufacture is outsourced. Employees By year-end 2006, The Body Shop directly employed 10,034 people and a further 21,000 people are The Body Shop At Home Consultants or employed by franchisees. Part of the L’Oréal Group 2006 was a momentous year for The Body Shop, as the Company became part of the L’Oréal Group. Now wholly owned by L’Oréal, The Body Shop is no longer a public listed company. L’Oréal is listed on the Paris Stock Exchange. The Body Shop operates as an independent entity, with a separate Board and Executive Committee, within the L'Oréal Group. The Body Shop International’s sales figures were consolidated as part of the L’Oréal Group from 1 July 2006 so sales figures given are

for the second half of 2006. Regional structure The Body Shop International global head quarters are split between London and Littlehampton, West Sussex. These offices are home to global corporate and support functions. The Body Shop International is organised into four regions: the UK and Republic of Ireland; the Americas; Europe, Middle East and South Africa (EMEA) and Asia Pacific (AP). Many of The Body Shop International stores are operated under franchise arrangements. Number of stores The number of stores increased by 89 in the second half of 2006. At 31 December, the total number of stores stood at 2,265 of which 886 are owned by The Body Shop International.

The number of stores at the end of 2006 showing company owned and franchisee owned by region:

Sales Consolidated since 1 July, The Body Shop recorded a second half-year of solid growth, with an increase in sales at the end of the year. Net consolidated sales grew by +9.7%. Retail sales(1) increased by +6.5% (+2.7% with a comparable store base)(2).

(1) Retail sales: Total sales to consumers through all channels.

(2) Retail sales with a comparable store base: total sales to consumers by stores that

operated continuously from 1 July to 31 December 2005, and over the same period in

2006.

At 31 December 2005

At 31 December 2006

Store openings in 2006

Company-owned stores

794 886 92

Franchisees 1,325 1,379 54

Total number of stores

2,119 2,265 146

Region Total number of stores Company-owned stores Franchisees

Americas 464 400 64

Asia Pacific 662 72 590

EMEA 827 153 674

UK and RoI 312 261 51

Total 2,265 886 1,379

€ millions 2nd half-year 2005

2nd half-year 2006

Like-for-like growth

Retail sales(1) 659.8 703.0 +6.5%

Retail sales with a comparable store base(2)

+2.7%

Consolidated sales 396.4 435.0 +9.7%

(1) Retail sales: Total sales to consumers including tax through all channels.

(2) Retail sales with a comparable store base: total sales to consumers including tax by stores that operated continuously from 1 July to 31 December 2005, and over the same period in 2006.

These figures reflect particularly good results in Europe and Asia, with very strong performances in the United Kingdom, Norway and Japan. Growth was strengthened by the success of launches such as the Aloe Vera Skin Care range and the Neroli Jasmin fragrance, and by gift sets, which sold very well at the end of the year. 2007 outlook Growing sales in recently entered markets, such as India and Russia, a rapid succession of product introductions and the continued focus on multi-channel retailing, mean that another year of growth can be confidently expected in 2007.

€ millions

Western Europe

301.3 318.9 45.4% +5.8%

North America

149.9 152.1 21.6% +1.5%

Rest of the World

208.6 232.0 33.0% +11.2%

Total 659.8 703.0 100.0% +6.5%

2nd half-year 2005

2nd half year 2006

% of 2006 retail sales

like for like growth

Retail sales by geographic zone

Governing Values

In July 2006, The Body Shop was officially de-listed from the London Stock Exchange and joined the L’Oréal family. To highlight the unique position of The Body Shop and our Values, from the start L’Oréal has ensured that we continue to operate as a ring-fenced division, maintaining a separate Board of Directors, Chairman, CEO and Executive Committee. Peter Saunders, our CEO, reports directly to Jean-Paul Agon the CEO of L’Oréal. Within the Executive Committee, each Director has a distinct responsibility for upholding Values relevant to their area:

Click on a name to learn what the Values mean to each member of the Executive Committee Our CEO, Peter Saunders, has ultimate responsibility for our Values, but the Executive Committee discuss and agree Values strategies and action plans approximately every two months. While we may share best practice with L’Oréal on employee matters, product development and sourcing, our fundamental policies and practices remain unchanged and we will maintain our separate strategies and action plans. New Values Principles and a new Code of Conduct Our five core Values still represent commitments that form the basis for how we operate. In 2006, we reviewed all of our policies to ensure that they reflect our current practice and strengthened commitments in many areas. As a result, we developed five core Values Principles, updated existing policies and introduced new policies in a number of areas such as animal derived ingredients and marketing claims. (These documents and a full policy hierarchy can be found on www.thebodyshopinternational.com) These Principles and Policies are used internally to help guide decision making, and externally to help specify our commitment and priorities. They were developed by a team of relevant representatives from the business, and were endorsed by the directors responsible for the respective functional areas and signed off by our CEO. The more detailed policies and standards that sit under each Principle are integrated into existing management documents. Our product development guidelines, for example, specify which chemicals our formulators cannot use, or whether certain natural ingredients can only be used if sourced sustainably. In 2006, we also launched a comprehensive Code of Conduct, which sets out expected behaviour for all The Body Shop staff and management. All employees must read and sign the Code of Conduct. This document mandates that all employees act in accordance with our Values. Values Training We recognise that Principles and Policies must be translated into action to be effective. To support our staff, we have created a Values training programme, which will reach all of our head office employees, Company-owned markets and franchisees during 2007 and 2008. The training programme is designed to identify specific challenges for each function or market, focusing on what the Values Principles mean for different people within the business. The package aims to bring the Values Principles to life and to encourage teams to set concrete actions which support the Values. Objectives and Values-related remuneration While many people join The Body Shop because of our Values, we also recognise that in a busy retail environment, everyone is focused on reaching their personal and team objectives. It is therefore important that Values objectives are officially included in the appraisal process. We have now strengthened the responsibilities and objectives of many departments to ensure that caring for the environment, safeguarding our animal testing policies or ensuring good working conditions for employees and our supply chain do not get forgotten in the pursuit of other objectives. All regional directors, for example, have a specific objective to assist with the rollout of our Climate Change Programme. Senior Sourcing and Product staff have as much as 50% of their annual bonus dependent on their success in different Values initiatives (such as increasing recyclate, reducing certain chemicals or complying with our Ethical Trade Programme).

Monitoring, reporting and audit The Body Shop is committed to continuous improvement in social, environmental and animal welfare issues. The Executive Board monitor performance against targets through an internal quarterly Values Report. For special focus areas, such as Ethical Trade, Community Trade and Climate Change, detailed reports are reviewed monthly. For certain areas, The Body Shop operates strict monitoring and audit schemes. Our commitment Against Animal Testing, for example, is certified via the Humane Cosmetics Standard, an externally audited scheme operated by the BUAV (British Union for the Abolition of Vivisection), widely recognised as the strictest standard in the field. We also report to our external partners, such as the Ethical Trading Initiative, the WWF Forest and Trade Network and the Roundtable on Sustainable Palm Oil. Links: Policy Code of Business Conduct

Our stakeholders

The Body Shop has a long history of stakeholder engagement. Our customers, NGO (non-governmental organisations) partners, franchisees and other business partners expect us to listen and to engage on issues of concern to them. Stakeholder engagement takes place throughout the business, at market and regional level, and from our Head Office functions.

Customers We know from our customer surveys and focus groups that 80% of our customers shop with us because of our Values, so we have a great responsibility to understand their concerns and preferences. We provide our staff with ongoing training to make sure they can answer questions and respond to customers’ comments and concerns. Some of our customers request in-depth information about our Values, so we have launched a new user friendly website which contains regularly updated information. We also track concerns by collating customer emails from all of our regions on a quarterly basis. The vast majority of questions in the past year have been about the takeover of the Company by L'Oréal, animal testing and chemicals use. Employees and consultants The Body Shop International plc directly employs 10,034 people, but there are a total of 31,000 people globally working in our stores, in offices, and warehouse operations and as The Body Shop At Home™ consultants. They are our most important advocates and always challenge us to do better. They face our customers every day in stores or as consultants in people’s homes. Over the past year they have had to answer many questions about the new ownership, and they have had questions of their own. Everyone at The Body Shop has a role to play in living up to our Values, and to ensure they are supported in this, we provide training, direct communications, informal dialogue at market level, a company intranet and a variety of employee and consultant magazines. We also have regional Values awards and a “Local Hero Award” to reward employees who have made a real difference with their passion and commitment NGOs (non-governmental organisations) The Body Shop has traditionally worked closely with NGOs. Starting

with our first campaign, Save the Whale with Greenpeace in 1987, NGOs have helped us to identify emerging issues, and to find new solutions. While we continue to establish partnerships with NGOs on our campaigns, we are also increasingly working with NGOs to ensure that the way we run our business continues to be an example to others. We have been in ongoing dialogue with WWF and Friends of the Earth on sustainable ingredients, with Greenpeace on chemicals and with BUAV on the impact on animal testing of new chemicals legislation in the European Union. Some of these organisations have been challenged by their members or other NGOs, who have questioned the ongoing commitment of The Body Shop to its Values after the L'Oréal acquisition. However, we have been grateful to see these organisations recognise that our commitments and efforts have not only continued and have even increased.

In addition to the significant local engagement taking place through our Stop Violence in the Home campaign, individual markets also undertake extensive engagement to address regional and local issues. In particular, our franchisees live the spirit of the Values in this respect: West Malaysia and Australia work closely with local NGOs to raise awareness on HIV and AIDS and every year markets as far apart as Sweden, Norway and New Zealand collaborate with local animal rights groups to campaign Against Animal Testing.

While engagement on particular issues forms the linchpin of our NGO relationships, we also use engagement to assess the wider role of The Body Shop. In 2006, we interviewed nine major NGOs about our current performance, and more importantly, where we could make a difference over the coming years. The consistent message was that we should show continued leadership on the issues where we already engage, as well as establishing a stronger focus on climate change and sustainable livelihoods. The stakeholder panel reviewing this report is also an example of such wider engagement. Franchisees Our franchisees are responsible for the largest part of our business, and their contribution to building our brand and Values is significant. In fact, they have often taken the lead in our campaigns and been an example to other parts of the business through their commitment to sustainable business practices. They understand their markets better than anyone, and provide us with invaluable insights into local concerns and issues. Our regional set-up ensures that there is an ongoing dialogue between The Body Shop International plc and franchisees, as well as between franchisees. Each region has a dedicated Values representative who engages on an ongoing basis with franchisees to ensure support and a feedback mechanism. Every year, each region organises at least one Franchisee forum, which the Director of Values attends, as well as Marketing and Product forums. Suppliers Our engagement with suppliers takes a range of different forms, some of which are described later in this report. We visit each of our Community Trade suppliers at least every two years, and assess our product suppliers annually. In addition, all suppliers receive annual written communication on our animal testing policy. In areas where we are trying to bring about greater change, we have more regular dialogue. For example, we have been in close contact with our packaging suppliers to increase the use of recyclate, and work with other suppliers to use new natural ingredients or find alternatives to chemicals of concern. Other companies and multi-stakeholder networks We want to share what we have learned with other companies, as well as understand how others have made progress. We are therefore a part of a number of formal networks, which include

progressive companies, both within and outside our sector.

Our preference is to engage in practical networks, aimed at promoting responsible business practices. Our markets and regions are very active in various local and national initiatives, while our Head Office function engages in the following networks:

Accountability CERES IFAT The Campaign for Safe Cosmetics The Corporate Alliance against Domestic Violence The Corporate Responsibility Group The Ethical Trading Initiative The Roundtable on Sustainable Palm Oil WWF-Forest and Trade Network

Our Values Strategy

‘Can I say at the end of the day that we are living up to our aim that our Values are embodied in the products we have made, the way we have made them and the way we have marketed and sold them?’

Our strategy for Values is to make sure that we operate our business so that the answer to that question is ‘yes’.

Our products are naturally inspired, free from animal testing and we design our processes to have as minimal an impact on the environment as we can. We aim to operate with care and respect for all those we affect, and everyone in the business is charged with ensuring that our business can be a force for social, as well as economic, good.

We are committed to running a commercially successful, sustainable business, and using resources responsibly with due regard for the needs of future generations. We do not believe that there is any conflict between commercial success and social or environmental responsibility. The greater our economic performance the more credible example we can set for other businesses, the wider ethical choice we can offer to consumers and the stronger our voice for the causes we champion. Strategy and principles The Values strategy identifies the areas where we make the greatest social and environmental impact. It gives the direction, and identifies actions that we need to prioritise such as the increased efforts we are currently putting into addressing our impacts on climate change.

In 2006 a new set of Values Principles was published that clarify the Company’s commitment to sustainable business. Workshops are being held for all global employees during 2007 and 2008 that will make sure all employees are fully conversant with the spirit as well as the detail of these principles. Our four regions are actively embracing

this. For example, in the UK & ROI region stores are launching a principle a month linked to product launches and events to make sure that the Values come alive for all those who are talking to our customers. Choosing the issues to address For a company with such a strong commitment and Values heritage, our stakeholders have high expectations. It is therefore crucial that we clearly communicate and prioritise the issues that we will address. If we try to do everything we will fail, but if we focus, we believe that we can make a real difference. We have therefore set a strategic direction that ensures that we do what we say and we say what we do, guided by the following criteria:

� We use our global high street presence to champion causes which can make a real difference to our employees, customers and suppliers

� We address issues where our operations have a direct negative impacts or can have a positive impact on people, animals or the environment

� We look to our five Values to ensure we always live up to our historical commitments, but work towards holistic solutions, for example by balancing conflicting social benefits and environmental impacts where necessary

� We do not believe in double standards. Our initiatives are therefore determined by global frameworks, but implemented at the local level to ensure relevance and effectiveness

� Our actions alone cannot bring as much change as we would like. We therefore always try to send a positive and constructive message to encourage others to change or take action

� We are not experts on all issues. We therefore involve NGOs and others who can help us address issues most effectively.

These criteria have led to a strong focus on issues such as animal testing, sustainable ingredients, ethical and fair trade and the carbon dioxide emissions related to our operations, but also highlighted key areas where our campaigns can make a difference

The two current global campaigns are ‘Stop Violence in the Home’ and raising awareness about AIDS with a ‘Spray to Change’ campaign. Many other causes are supported by local employee activities or by donations from The Body Shop Foundation, our charitable trust.

Our community involvement

The Body Shop Foundation The Body Shop International plc does not in the main make charitable donations, but a charity, The Body Foundation (registered charity no. 802757), was set up in 1990. In 2006, The Body Shop International plc gave the Foundation £671,000. The Foundation's focus is to support innovative global projects working in the areas of human and civil rights and environmental and animal protection. The majority of the Board of Trustees are employees of The Body Shop International plc.

The Foundation has its own terms of reference and its own Board of Trustees, which include The Body Shop International’s Director of Values and Business Development Director, among others. There are common themes between the initiatives of the Company and those of the Foundation. While The Body Shop International will address the social and environmental impacts of running a business, the Foundation will support pioneering, frontline organisations that otherwise have little hope of conventional funding. For example, The Body Shop International is sourcing sustainable palm oil from Colombia, while the Foundation has provided funding for a smallholder taskforce in South East Asia that is investigating how to get small scale palm oil plantations certified as sustainable.

Charity shop The Body Shop makes donations of end-of-line products that the Foundation sells them on to raise funds. This is also a good way to increase the visibility of the Foundation among The Body Shop employees and the wider community, while avoiding sending non-saleable products to landfill.

Regional grantmaking The Foundation now has regional funding panels in the UK, EMEA, Asia-Pacific and the Americas. These grants panels are made up of regional representatives from the Company and franchisees, who help the trustees to determine the areas that the regional grants of the Foundation will focus on. For example, the Asia Pacific panel focuses on child rights, poverty and environmental sustainability. Already, the regional grants have meant that some very exciting new projects and initiatives have been funded.

To find out more about projects supported by the Foundation and how it operates visit thebodyshopfoundation.org

Engaging with local communities The Body Shop markets and stores actively support both global campaigns and local communities. The Body Shop staff around the world are engaged in a huge variety of community activities from organising beach clean-ups to supporting women’s shelters and orphanages. There are hundreds of great examples of inspiring initiatives all over The Body Shop world, but a few typical examples are:

In Finland, several The Body Shop® stores organise special ‘pampering evenings’ in local homes for the elderly. The evenings include socialising and hand and feet treatments. The events have been very much appreciated, cheering up the elderly and providing some variety to their everyday routines.

In New Zealand, each store and retail support centre selects its own community project to complete every year, working for 12 hours a month. The type of work completed varies from stream clean-ups, to elderly care, child welfare, youth development, children’s hospitals and supporting special needs children.

The Body Shop At Home Consultants often go the extra mile to make a difference. In 2006, consultants raised GBP 34,000 for Children on the Edge (a charity originally set up by The Body Shop to help children at risk), and four consultants travelled to orphanages in Romania to see that all the funds raised made a real difference.

Disaster relief In general The Body Shop International does not fund charities. However The Body Shop International does make donations to disaster relief funds and these contributions are coordinated with the regions. With stores in more than 50 countries around the world, it is possible that The Body Shop employees may be affected by disaster, as happened with the Indian Ocean tsunamis of Boxing Day, 2004 and Hurricane Katrina in New Orleans in October 2005.

These figures do not include contributions via campaign fund raising, reported separately in this report or any other donations raised by individual markets, employees, franchisees or via The Body Shop At Home™.

*Due to changes in accounting practices and in our financial year linked to the L'Oréal acquisition, direct comparisons year-on-year are not possible, since pre-tax profits are not reported. However, extrapolating the 10 month figure to 12 months would show an approximately 14% increase - somewhat above company growth (9.5%).

Stakeholder comment from The Body Shop Head Franchisee in Indonesia

As a franchisee for the last 15 years, I continue to be immersed in The Body Shop because of the mission and commitment the Company has to Values, which is enshrined in its Articles of Association. It is with great reassurance that we hear Jean Paul Agon’s message that L'Oréal will encourage The Body Shop to forge ahead as an ethical retailer and to observe the clear separation between L'Oréal and The Body Shop. Gordon Roddick’s role as the Chairperson of the stakeholder panel is especially significant in this regard.

For the past 5 years, The Body Shop International has been focused on improving its business strength and getting its house in order. Values at The Body Shop have been concentrated on annual campaigning on domestic violence and increasing Community Trade, with success. Independently, a number of franchisees around the world continue groundbreaking work in the five Values. With the increasing numbers of franchisees and people employed across the world, a systematic approach to keep the passion alive and to implement the five Values in a consistent manner has been sadly lacking.

BSI was a very early leader in the area of environmental responsibility. With the exception of sustainable palm oil, not much has been progressed in the past four years. It is a great delight to see the renewed focus and commitment in this area. The franchise community looks to the leadership of The Body Shop International in driving towards delivering on one of the strongest reasons for our being – to reduce the impact our business activities have on our planet. The Body Shop must regain leadership in this critical area.

There has been much transparency with no holds barred (as is The Body Shop style) in the discussions leading to this Values Report, involving NGOs and employees as stakeholders. Frank and tough discussions have been had on every section of the Values report. Franchisees see this as The Body Shop International Management’s

commitment to strengthen what is already embedded by Anita Roddick in The Body Shop organisations around the world. Leadership can only come from the top and we look forward to stronger leadership from the top management in this respect.

The future can only point towards stronger and stronger responsibility on the part of the retailer. The Body shop franchisee community is ready to once again trail blaze in the area of Values. The next step is for The Body Shop International plc to show the way and build the systems by which the goals stated in this Values report will be achieved not only at The Body Shop, but around the world.

Suzy Santoso, Head Franchisee, Indonesia

Stakeholder comment from The Body Shop Regional Director for UK/ROI

The Body Shop enjoys a special place in many people’s hearts because of our Values. Before I joined the business I admired as a consumer how The Body Shop had led the way on environmental issues and with the against animal testing campaigns. As a business we were years ahead of other retailers and it was unique for a leading high street brand to have such a commitment to campaigning on these issues. It was such an amazing story, great products that captured the public's imagination and a way of doing business that was so different from anything that had gone before.

The core Values of the brand felt especially relevant to me; acting in a fair and ethical way and treating people with respect were essential elements of my upbringing and have always played a significant part in my life. If I'm honest I joined The Body Shop because of our Values, being presented with the opportunity to work with a company that shared my own Values and wanted to make a positive difference was too good a chance to miss.

Working in a way that supports small scale farmers though a positive trade programme, working with marginalised groups in all areas of Society and campaigning on issues which make a positive difference to the World we live in make The Body Shop so much more than just a retailer, or just a place to work. It is this sense of being able to make a difference through our products and campaigns, which makes The Body Shop such a rewarding place to work.

On a day to day basis our Values are important to us in the workplace and we should strive to ensure we display these in the way we work with each other. For example, we can try to ‘Activate Self Esteem’ in our colleagues and we need to be aware of the positive impact we can all have on the people we work with.

Increasingly the issues we promote and campaign on are becoming more mainstream and integrated into other retailers' strategies. This emphasises the difference we have made as a business to the way

other companies now think and act. Looking ahead there is an even bigger opportunity for us to be famous to even more people for delivering fantastic naturally inspired products, and leading the way on environmental and social issues which are even more relevant today than they were 30 years ago.

Alastair Kerr, Regional Director, The Body Shop UK/ROI

The Body Shop, our Against Animal Testing Policy and L’Oréal

One of the principles that made The Body Shop unique and which is still robustly adhered to today is our policy against animal testing of cosmetics and their ingredients. Our Against Animal Testing Value means that: we believe that no animals should be used in the testing of toiletries and cosmetics. We do not ask others to test on our behalf and suppliers must certify that they have not carried out animal tests on ingredients to support their use for a cosmetics purpose.

When the L’Oréal offer was announced for The Body Shop, there were criticisms from some NGOs particularly focused on animal testing. Throughout this period, we have done our best to be open and responsive to these critical stakeholders, offering to engage in dialogue. These debates centred on the fact that The Body Shop and L’Oréal had different policies on animal testing. In this article, we set out how The Body Shop is continuing to rigorously apply its Against Animal Testing policy as well as working with organisations to champion the cause of animal protection. This approach reflects L’Oréal’s clear stance that our Against Animal Testing policies are protected and ring-fenced. For more information on L’Oréal’s policy on this issue see loreal.com

The criticisms of the partnership with L’Oréal should be set against the fact that the Coalition for Consumer Information on Cosmetics and the European Coalition to End Animal Experiments expressed optimism for the acquisition recognising the opportunity The Body Shop has to positively influence its parent company on the issue of animal testing in the cosmetics industry. We have also enjoyed strong support from both the British Union for the Abolition of Vivisection (BUAV) in the UK and the People for the Ethical Treatment of Animals since the acquisition by L’Oréal. These stakeholders are in regular dialogue with us concerning our policy and lobbying on behalf of animals and naturally continue to challenge us about the future opportunities.

Our current approach is clear. Firstly, we are continuously working with NGOs like BUAV on critical issues like chemicals reform (see next article). Secondly, we have made clear that our policy remains unchanged with our continued commitment to the Humane

Cosmetics Standard, operated by BUAV. There has been clear ring-fencing, including separate ingredient databases to avoid data sharing and reliance on animal testing data. Thirdly, we continue to demonstrate that we will not compromise our policy and to date have not entered China as their product registration rules require animal testing.

Although we are sorry that some NGOs have dropped their support for us, we have continued to command the support of the vast majority of our stakeholders in this area. The fact that we are the only global retailer of cosmetics to meet the requirements of the Humane Cosmetics Standard indicates we are still best in class in terms of our approach to animal testing. The way we monitor our ingredients to ensure that they have not been tested after our fixed cut off date is highly thought of by leading animal protection groups. The Company continues to be committed to the issue and has worked closely with BUAV to lobby the EU to ensure that new chemical legislation does not result in a growth in animal experimentation. Additionally The Body Shop Foundation, our charity, continues to support a range of organisations developing pioneering work on animal rights and protection. These include causes that would not be funded by many charitable trusts and companies.

Please visit our Animal Protection Principles and our Against Animal Testing Policy Please visit the statements on The Body Shop and L’Oréal from PETA US and www.buav.org

REACH and animal testing

Since the beginning The Body Shop has campaigned passionately to end animal testing for cosmetics purposes. In the EU, we have been successful in creating awareness of the issue and pride ourselves in being part of the movement that saw the Cosmetics Directive amended in 2003 to ban animal testing of finished cosmetic products from 2004 and a timetable introduced for a ban on the testing of ingredients used in cosmetic products. The ban on the testing of ingredients will apply progressively as alternative methods are validated and adopted and in any case by a deadline of March 2009. A ban on the marketing of cosmetic products that contain ingredients tested on animals for all human health effects with the exception of repeated-dose toxicity, reproductive toxicity and toxicokinetics will apply from March 2009 and for the specific health effects mentioned, a deadline of March 2013 is foreseen by the Cosmetics Directive, irrespective of the availability of alternative non-animal tests. Once the marketing ban is in force, for all cosmetic products sold in the EU and including those made outside of the EU, neither the product nor the ingredients can have been tested on animals.

The Body Shop has not tested finished cosmetic products on animals since its inception and does not use ingredients that have been tested on animals for a cosmetics purpose after 31 December 1990. A cut-off date recognises that it is not possible to guarantee that ingredients have never been tested, but ensures that no further animal tests will take place. This approach is in line with best practice recognised by leading animal rights groups through their Humane Cosmetics Standard, operated by the British Union for the Abolition of Vivisection (BUAV). We have also never compromised on human health or environmental protection: our products are assessed in accordance with the requirements of the EU Cosmetics Directive. We have also continuously urged the industry to collaborate in using, developing and helping to validate alternative tests.

Protecting the environment at the expense of animals? A new challenge to our commitment Against Animal Testing is the reform of existing chemicals legislation into one new regulation known as Regulation, Evaluation and Authorisation of Chemicals (REACH). REACH will strengthen consumer and worker protection by

requiring registration and safety evaluation of all chemicals used in the EU. The Body Shop has a strong commitment to the precautionary principle, and addressing the impact of the chemicals that we use on the environment and human health, and we therefore support the objectives of REACH. The REACH regulation will come into force in June 2007.

However REACH is likely to have wider impacts because for many of these chemicals it could mean retesting on animals, potentially invalidating previous victories in the Cosmetics Directive. The Body Shop wants to ensure that every effort is made to prevent the need for any new animal tests on chemicals used for cosmetic purposes. We therefore worked with BUAV who campaigned to ensure that the Cosmetics Directive ban on animal testing for cosmetic purposes is protected. We signed up to a joint declaration with 20 other cosmetics retailers in a nationwide advertising campaign run by BUAV to urge consumers to fight for their right to keep cosmetics cruelty-free.

At the same time we also engaged with our key suppliers to understand their plans, we spoke to scientific organisations such as FRAME (the Fund for the Replacement of Animals in Medical Experiments) on the availability of in vitro alternatives, and we have discussed the situation with Greenpeace, who have campaigned to strengthen REACH, to ensure that the right balance is struck between environmental and animal protection.

In the future The debate has identified a potential conflict between the environment and animal testing and as a global advocate for environmental and animal protection, we see this as a current and future challenge. We are seeing similar moves on chemicals reform in the USA and other parts of the world, and will remain vigilant – sharing our experiences on REACH with global partners.

Links: BUAV on REACH

Stakeholder comment from the British Union for the Abolition of Vivisection

Animal protection organizations and ethical consumers worldwide reacted with surprise, and often dismay, at the news that L’Oreal was to acquire The Body Shop International. Obvious and particular concern was expressed over the future of The Body Shop’s firm and consistent stance against animal testing.

Compassionate consumers are aware that The Body Shop was the first international cosmetic company to be approved under the Humane Cosmetics Standard in the EU and its sister Corporate Standard of Compassion in the US. This international standard, managed by leading animal groups worldwide, is the only true guarantee for consumers who wish to avoid animal testing when they purchase cosmetic and personal care products.

While many challenges lie ahead in the relationship between the Body Shop and its new parent company, it is clear that the principle for which The Body Shop was initially renowned, Against Animal Testing, does indeed remain part of the company’s DNA. The company’s commitment to ensure that there is no testing for its products has survived the L’Oreal offer and clear arrangements look to be in place for ring fencing of research, development and data sharing to ensure that The Body Shop can continue to keep its value in place.

L’Oreal have stated that The Body Shop’s current animal testing policy will continue to be applied across the product range and that L’Oreal will respect the identity and values of The Body Shop. We hope that The Body Shop will encourage L’Oreal to go further, however, and commit themselves to ending animal testing for its own product ranges. We recognize the multinational nature of the cosmetic industry and the need for values-driven companies to expand and gain access to global markets. Compassionate consumers send a strong message to major corporations when they choose to buy cruelty free products. We are pleased, therefore, that L’Oreal recognize, in its purchase of

The Body Shop, the importance of the growing ethical consumer market and that the production of high quality cosmetic products need not involve animal suffering. We now look to L’Oreal to learn from The Body Shop and commit to meeting the requirements of the international standard as a matter of priority.

The leadership provided by The Body Shop in efforts to drive animal testing out of the cosmetic industry has been important in the success of the campaign in the EU – where a testing and sales ban is due to come into effect. Where The Body Shop has led, however, others are now following, as major high street retailers commit to going cruelty free. The time has come for the Body Shop to return to higher profile and stronger campaigning on this issue, to reassert the company’s core values and ensure that The Body Shop continues be a leader in the global campaign to drive animal testing out of the cosmetics industry. Michelle Thew Chief Executive, British Union for the Abolition of Vivisection

100% Vegetarian

The Body Shop has long been committed to animal protection. In recent years we have enjoyed awards from both the Royal Society for the Protection of Animal and People for the Ethical Treatment of Animals for our best in class standards.

Suitable for vegetarians Our commitment to animal protection extends beyond our Against Animal Testing policy, as we believe that no animals need to be harmed to produce cosmetics. This year we are delighted to announce that all of The Body Shop products are now suitable for vegetarians. The term “suitable for vegetarians” means that our products are free of any ingredients resulting from animal slaughter, such as gelatin or animal hair. It may sound strange but many cosmetics do contain these by-products. Customers with strong vegetarian principles seek products that they can use without compromising their ethics, and we are keen to meet their need.

Now 100% vegetarian For many years, the vast majority of products sold by The Body Shop could be classified as “suitable for vegetarians.” However, there were two product lines that did not meet the criteria. This meant that we could not communicate a clear message to our customers that The Body Shop is a destination for vegetarian-friendly products.

Until 2007 our men’s shaving brush was made from hog’s hair and our Bath Beads contained gelatin, a derivative of the meat industry. A synthetic alternative has now been found for the shaving brush that meets the high performance standard of the previous product and we are proud to announce its introduction during 2007. The already-proven and award-winning material is used in our current range of make-up brushes. We have been working to find suitable alternative ingredients for the popular Bath Beads, but were unable to source a viable ethical alternative. Therefore this year the Company took the decision to discontinue their sale altogether.

100% – globally We have liaised with the UK Vegetarian Society to ensure that we meet the standards required to claim vegetarian status. We have chosen not to carry a mark to indicate our vegetarian status as The Body Shop operates in more than 55 countries across the world and there is no universally understood vegetarian mark – for example the Vegetarian Society mark is recognised only in the UK.

Vegans In all our channels – in-store, The Body Shop At HomeTM and online – we are also happy to provide our vegan customers with information on suitable product choices. Not all our products are suitable for vegans, as shellac, beeswax, honey and lanolin are included in some of our products, but we can help vegan customers identify products suitable for them. Communicating our commitment in 2007 During 2007 we are communicating our new Vegetarian commitment to our stakeholders including customers, media and NGOs through public relations activity and online communications.

Celebrating Community Trade with old and new suppliers

2007 is a proud year for The Body Shop as we celebrate 20 years of our Community Trade programme. Created by our founder Dame Anita Roddick in 1987, with a small group called Teddy Exports in India as our first supplier, Community Trade now involves suppliers in more than 20 countries across the world from Brazil to Zambia. More than 15,000 people benefit from the Community Trade programme.

Twenty years on we continue to trade with Teddy who supply us with our best-selling twin-ball massagers, and have been thrilled over the years to watch their community grow and prosper with a school, and HIV and AIDS awareness programmes. Teddy even offers maternity pay for their female workers, an inspired and progressive move in a developing country where even earning a decent wage can be challenging.

Community Trade was the first fair trade programme of its kind in the cosmetics industry and remains unrivalled by any other cosmetics company. The fair price we pay offers communities the chance to invest in their future as well as cover their wage and production costs. It is our commitment to trading with a conscience. Community Trade isn’t charity or aid, it is simply about empowering communities to build their own successful futures.

Community Trade is fair because it meets the following criteria: 1) It offers a stable, predictable, fair wage 2) It’s about having an interest in the supplier’s community 3) Its goal is to help the community to have a future

Local engagement to address local issues Our suppliers are highly diverse, and we address each Community Trade supplier’s unique set of circumstances and challenges individually. Apart from guiding principles, there is no “one size fits all”. To understand and address local issues, we work extensively with local grassroots groups and NGOs. This objective, local

knowledge and presence is often critical to the ongoing achievement of the objectives of CT.

A new partnership – Aloe vera from Guatemala In 2006, we launched Aloe – a full bath, body and skin care range – using the world’s first fair trade aloe vera from our new Community Trade supplier, the Guastatoya Farmers in Guatemala. Aloe vera, often called the Miracle Plant, is also working wonders in Guatemala.

Our Community Trade programme with aloe farmers in the El Progreso region of Guatemala delivers the opportunity for the farmers to create a better life for themselves and their families. At the same time, it is providing The Body Shop customers with the finest aloe, cut by hand and processed in an innovative way that means it needs no preservatives.

Part of the income from this trade is used to support children in 200 schools with a range of high quality visual materials. Schools in Guatemala, particularly in rural areas, struggle to provide books and visual aids. A “Friends of Schools” committee consisting of local stakeholders such as church and education representatives chose the visual aids as the most effective way to help primary age children.

Ruben Antonio Valdez, 43, an aloe farmer and a member of the Friends of the School committee believes the Community Trade scheme is not only improving his family life, but a whole generation of young children in the local area: “The biggest difference is that I am able to receive income and put my children through school. I am also proud of the fact that profits are being reinvested in our children – our children will benefit from this investment into the future.”

He also believes in spreading the word about the scheme: “Our hope is that through these stories, we can involve more producers and more people will benefit.”

Our new make-up range and marula oil Last year we re-launched our make-up range and our revamped products continued to feature Community Trade marula oil as a key ingredient due to its strong moisturising properties. The Body Shop pioneered the use of marula oil in its products in 2001, but the women of Namibia have made and used marula oil for generations and over the years it has become one of Africa's greatest skin care oils.

Namibia is typical of many African countries where extremities of wealth and poverty are evident. Around 6 per cent of the population own 90 per cent of the land wealth. Half of its population depends on subsistence farming for its living. Especially in the north it is a male-dominated society where few women enjoy the opportunity for financial independence. This is why the story of the Eudafano Women's Co-operative is so inspiring.

For the 4,800 women of the Eudafano Co-operative, trading their marula oil means that they can enjoy a level of financial independence that their predecessors could only have dreamed of. They can support their families, buy school books for their children and basics like soap, new clothes and medicines. Every one of the members of the co-operative earns the same fair, and above average, price for her marula oil.

For more information on our Community Trade ingredients visit www.thebodyshopinternational.com

Principles and challenges of Community Trade

After 20 successful years, the Community Trade programme continues to evolve. In the last two years, it has seen significant advances. We have introduced new suppliers, products and ingredients as well as new internal processes and procedures aimed at ensuring greater sustainability of the trade with the communities over time.

The Community Trade programme today covers 28 suppliers across 21 countries. The current percentage of products containing CT ingredients is just short of 60% – with Community Trade ingredients representing an estimated 11% of our total raw material spend. The current percentage of products containing CT ingredients is just short of 60% – with Community Trade ingredients representing an estimated 11% of our total raw material spend.

As the first, and arguably still the only programme of its kind in the cosmetics industry, Community Trade is now bigger than ever. It continues to deliver benefits to marginalised producers, our consumers and our brand – a real three way win.

A strategy for Community Trade 2006 saw the culmination of a process that created the first Company-wide strategy for Community Trade, ensuring that CT is driven to a new level within the business. The essential elements of this strategy are a vision, objectives and strategies for CT:

Vision: To present, with Community Trade, a model to our industry that others can follow

Objectives

1) To satisfy our demand for certain ingredients, gifts and accessories in a fair way; 2) To bring benefits to as many people in marginalised communities as

possible, and 3) To support the brand by communicating the benefits of the programme throughout our channels and regions.

Strategies: a) Benefit Maximisation b) Risk Management c) Communication

Definitions, Principles and Guidelines The Community Trade strategy is drawn from our definition of fair trade, the result of 20 years’ experience of trading as a Values-driven retailer:

1) Fair pay for work in fair conditions 2) An interest in the sustainable development of the community 3) A future that is predictable

From this definition, our Community Trade Principles dovetail into the overall hierarchy of the Values Principles.

Beneath these principles lies a set of guidelines and commitments. Constantly reviewed and developed, they are used to monitor suppliers’ compliance with our standards – a process that takes place on an ongoing basis in partnership with the suppliers themselves and through visits at least every two years, as described in our The Values Report 2005 The guidelines are also used to guide our internal operations, to protect the benefits to our Community Trade suppliers and to The Body Shop® brand. Alongside the guidelines sits a set of commitments that we make to the CT supplier. These commitments are, again, related directly to what we define to be “fair”.

Trading Levels and Sustainability

Our aggregate spend in the last financial year on CT gifts, accessories and ingredients was the highest ever. Approximately half of this spend is ingredients and half is accessories.

We monitor the current and forecast level of trade with all CT suppliers closely. Through the close, frequent contact that we have with our CT suppliers we understand their output capacity – in the short and long term. We attach a target trading level to each supplier – called the Sustainable Business Level. This annual level of trade produces income and community benefits that are sufficient to comply with our definition of fairness, without placing suppliers at risk.

Developments with existing suppliers One significant move during 2006 concerned our CT supplier of cocoa

beans, Kuapa Kokoo in Ghana. Our purchases of cocoa are higher than any other CT ingredient (by volume). Through the Community Trade programme, we are one of the biggest customers of fair trade cocoa bean from Ghana – all of which we buy from Kuapa Kokoo. The Body Shop was key to the success of this farmers’ co-operative, and we also assisted in the start-up of their UK based chocolate company, called The Day Chocolate Company (now renamed Divine Chocolate Limited). In 2006 The Body Shop was delighted to be able to hand back our 14% stake in Divine to the cocoa farmers, giving them a controlling 47% share in the Company. The statement “a farmer owned fair trade company” is a rare one. That the farmers concerned are in Ghana, and that the Company is in the UK is a matter of great pride to all involved.

At the time of the handover Mr Ohemeng Tinyase, Managing Director, Kuapa Kokoo Ltd commented: "Kuapa Kokoo was delighted and honoured that The Body Shop has decided to transfer their holding in the Day Chocolate Company to Kuapa Kokoo. We could not have created Divine chocolate without the support of The Body Shop. The funds generated by Divine chocolate have made a very great difference to the lives of cocoa farmers in Ghana. Now that Divine chocolate is progressing well, these benefits will be even greater. We in Kuapa Kokoo have always treasured our relationship with The Body Shop who use our cocoa butter in their products. We look forward to working with them for many years.”

Demand challenges and their impact on suppliers Through our forecasting system, and with an eye on product launches and discontinuations, we aim to achieve sustainable business levels through time – and to grow them as the suppliers grow.

Community Trade is a demand-led programme and we are dependent on our customers buying products containing CT ingredients and accessories. This is the nature of a programme based on trade not charity. We cannot guarantee demand for life, but we monitor our Community Trade suppliers’ financial dependency on orders from The Body Shop, and provide forecasts to allow the suppliers to plan ahead. We advise where we believe dependency to be an issue, and support our Community Trade suppliers in identifying weaknesses, such as limited skill sets or product ranges, which may be a barrier in gaining access to other markets and other customers.

Number of active suppliers, new entrants and exits

In cases where there is no longer a demand for a Community Trade ingredient or accessory, we develop a discontinuation and exit plan. Every exit requires a full briefing and sign-off from our CEO and Executive Committee.

We will always strive for a “soft exit”, either by giving appropriate notice or through sheltering the community from sudden financial hardship. We will also point out where the sustainable business levels cannot be achieved over time – despite the best efforts of our formulators and product development team.

For example, at the end of the year it was decided that we had to withdraw from two of our suppliers – in Kenya and in the Philippines – and in each case, guided donations were made to assist in ensuring the sustainability of their operations after our exit.

2003/4 2004/5 2005/6 Year-end 2006

Number of active suppliers 30 30 30 28

New suppliers 0 0 0 1

Supplier exits 0 0 0 3

The year ahead We want to be an example to others, showing that buying fairly traded products provides benefits to all parties involved. We will work hard to motivate and inspire our people through training and awareness events and engage and delight consumers and build the market for Community Trade ingredients, gifts and accessories in The Body Shop® range. We look forward to the coming years and are excited that L'Oréal is currently reviewing options for including Community Trade ingredients in products, and we hope to be able to assist them.

Stakeholder comment from Divine Chocolate

The Body Shop has supported Kuapa Kokoo and later Divine Chocolate since 1994. They have been a fantastic partner, buying Kuapa cocoa beans for inclusion in their cocoa butter range, investing in Divine as a start up company and selling Divine in The Body Shop during seasonal promotions. And more recently they have donated the shares that they held in Divine Chocolate Limited to Kuapa Kokoo, increasing the farmers’ ownership to 45% of the company.

The Body Shop is certainly a company with a difference, a company that is driven by its Values and one that has used its position to support other producer businesses through its Community Trade programme and other fledgling values driven businesses. A year down the line their commitment to this is as strong as ever.

Sitting on this stakeholder panel has been a very interesting and hopeful activity. It has been surprising to be part of such an open and frank dialogue in a multinational company that is now owned by L'Oréal. It has involved staff and associates at all levels of the business as well as people representing organisations who offer specialist expertise in the Values that The Body Shop holds dear. It has been a reassuring and learning process for me personally, seeing how to lock the Values into the Company once the founding inspirational leader has moved on. Is impressive that they have convened this panel and done this report and it is a great example to other companies of how it might be done.

The way that The Body Shop works with producers in their Community Trade programme has shown passion, commitment and imagination and the review process has show that that has all continued.

The internal processes seem to be thorough but would be even better if there was some relevant independent scrutiny/verification. In future Values reports it would be good to consult with and to include some direct reports from a selection of the Community Trade suppliers.

The fact that the Community Trade programme is about a trading relationship that works because consumers want to purchase the products is great but it does mean that The Body Shop needs to promote these products within the Company and to consumers in order to grow the market for them. It would also be nice to see a commitment to increase the spend on Community Trade ingredients as a proportion of total spend to complement the commitment to include Community Trade ingredients in 65% of products.

Sophi Tranchell MD Divine Chocolate Limited

Wise Woman ™

In line with its commitment to Activate Self Esteem, The Body Shop ensures that communications to customers are delivered in a positive, honest and empowering tone of voice. This approach is embedded in the Company’s mission to be a force for positive social change. So, communicating the launch of a skin care range suitable for mature skin for the 50+ age group could have been a challenge, when ageing in our society is often positioned negatively.

Marketing communications in this area can imply that mature women should want to turn back the clock rather than celebrate and embrace the age they are. The Body Shop spent three years developing a skin care range of seven products for mature skin, called Wise WomanTM. It is a fact that mature skin has different needs to young skin. Over time, skin becomes finer, drier and more delicate. As a result it needs greater and more effective moisturisation. Our goal was to provide a range to meet the specific skin care requirements of the mature woman, not to make false promises of miracle cures.

The name Wise WomanTM was developed by The Body Shop founder Dame Anita Roddick. In creating the marketing communications to both customers and the media The Body Shop wanted to ensure that the message it conveyed to customers was honest, positive, engaging and celebratory.

The creative concept The team developed a creative concept using Dame Anita Roddick as the face of Wise WomanTM along with five women. Three are customers, one is a consultant for The Body Shop At Home™ and one is an employee of The Body Shop. By using ordinary women we wanted to convey the message that these women, like many in their age group, are also “wise women” and that with age comes confidence, knowledge and greater self-esteem. None of the images of the women used in the promotional material were retouched.

The language

Our goal in communicating the range was to be honest, positive and celebratory. We clearly state that the range is for “mature skin”. We have communicated the performance of the range through honest language and the results of user trials, thereby demonstrating that “real people” have tested the range. To celebrate the ageing process we have incorporated the thoughts of Dame Anita Roddick, founder of The Body Shop and a role model for generations of women across the world, as well as the women who took part in the promotional photography, highlighting their positive approach and philosophy on life.

Providing a voice In a youth-driven culture we are aware that women in their 50s can be ignored or marginalised across some sectors of society and are not readily given a voice. Social networking forums such as MySpace are popular in the youth markets but there is little available for the mature population. In response to this we have created a global online community especially for women in their 50s. The website invites women to share their thoughts and advice on health, beauty, lifestyle, relationships, or any subject they would like to tackle.

The global site is in the English language and additional sites have so far been developed in French, German and Dutch, Through Wise Woman™ and the online community www.wise-woman.net our goal is twofold. Firstly we want to offer mature women a high performance skin care regime that satisfies the changing needs of their skin. Secondly we are providing an opportunity for this age group to voice their opinion on issues that are important to them.

Links: To find out more about the Wise Woman range and philosophy visit www.wise-woman.net

Stakeholder comment from a The Body Shop at Home Consultant

Inviting a The Body Shop At Home Consultant onto its Values panel clearly demonstrates the commitment of The Body Shop to transparency and openness. To be that panel member is both an honour and a responsibility, representing, as I do, several thousand feisty Consultants with Attitude!

Many of us joined The Body Shop At Home because of the Company’s ethics, its campaigning and mischief-making. Good as the products are, the Values are what makes the Company unique.

At parties, we meet customers face-to-face, and they are quick to give their opinions. The L’Oréal takeover alarmed us all – particularly with regard to animal testing. The Body Shop is a pioneer in cruelty-free cosmetics, so joining L’Oréal was seen as tantamount to “sleeping with the enemy”. However, in the past year, L’Oréal has constantly reaffirmed that it respects our Values and has much to learn from The Body Shop. Meanwhile, we have made a further commitment to animal protection with our new “100% vegetarian” product development. We welcome this…. Oh, and please bring back our paper till bag with its “Against Animal Testing” message.

Telling the Community Trade stories about the people and ingredients behind our products is integral to “At Home” parties. Community Trade is mutually beneficial, we get great ingredients and the suppliers get a fair price. For the women in Ghana who supply our Cocoa Butter, for example, this is empowering in terms of economic benefits, and increased self-esteem.

We would like to see The Body Shop meet its target of putting Community Trade ingredients into more products, and we’d like to see an increasing number of Community Trade suppliers, too.

Activate Self Esteem has a particular resonance. For us, too, “Empowering Women”, like charity, begins “At Home”! This job has brought increased economic independence and success to many

Consultants/Managers, and with it self-esteem and confidence. We hear many of their moving testimonies every year at our The Body Shop At Home seminar.

Every year we raise funds for the marginalised “Children on the Edge”, who are very close to the heart of The Body Shop At Home. Campaigns and fundraising are a big part of what we do under the “Defend Human Rights” banner, the present Stop Violence in the Home campaign has been a great success. This problem affects up to 1 in 3 women and their children, so it naturally has personally affected some of us and our customers.

The Value “Protect our Planet” includes so many issues – chemicals, sustainable ingredients, climate change… and many more. As far as pollution and waste are concerned, The Body Shop was ahead of its time. “Do you need a bag?” was the groundbreaking question asked of customers by The Body Shop counter staff right from the Company’s inception. We have always been rewarded as a “green” company and our mantra is Reduce, Reuse, Recycle. It’s impressive that our make-up packaging contains 75% recycled material, but what happens to our bottles/bags/boxes once emptied? As a company we must surely take some responsibility for this, like we used to.

It is understandable (at least in the UK) that refilling/returning packaging is no longer viable for many reasons (contamination, carbon emissions etc) but it is also regrettable. If the mantra of Reduce, Reuse, Recycle is sincere, we must address this issue. Most of our bags and packaging will probably end up in already overfull landfill sites, as plastic recycling and doorstep collection is generally poor in the UK at present. Maybe a campaign on this “hot issue” is overdue?

On the plus side, we are seeing impressive sales of our “Bag of Passion” – an inexpensive, strong and reusable bag with impeccable credentials. It is made by our Community Trade supplier Teddy Exports in India, an organisation dedicated to welfare and development, and 40% of the bag’s proceeds go to Children on the Edge, so it ticks all the boxes.

The Company’s commitments to developing a strategy on packaging and waste in 2008 is a timely one, we want to stay at the forefront of making a difference in everything we stand for.

Cathie Cornish, Senior Consultant, The Body Shop at Home

Employees

The Body Shop understands that our employees are critical to our business success, and we know we need to use a range of progressive people practices to earn a reputation as a good employer. These fall into four areas:

• Leadership • Training • Work environment • Ensuring a “Fair Deal” between employer and employee

Leadership The Body Shop is currently designing a set of learning modules that will equip our managers in the field with the practical leadership skills they need to manage their people. These learning modules will build on our existing programmes “Be Curious” and “Be Inspired”, which are focused on building leadership capability in our up-and-coming leaders. Our existing leaders also have the opportunity to build their pan-organisation leadership skills through our “Global Leadership Development Programme”, which is designed to help them to drive results in our global, multi-channel business.

Training Great leadership helps to provide the inspiration that an organisation needs, but this soon fades if employees don’t get the training they need to do their job well. The Body Shop supports our field employees by providing extensive customer and product training. “Inspiring the Customer”, for example, is our global customer service programme and in 2006 we developed three global product training programmes that tracked three major product launches: “Wise Woman” skin care range, “Make Me Fabulous” make-up range and “Aloe Vera”, also a skin care range.

Work environment We are committed to making sure that all employees have the work

environment that will allow them to be successful in their jobs. For example, we have flexible working arrangements where possible and have implemented family friendly initiatives such as a childcare voucher scheme for all our UK employees and an on-site nursery based at our global office.

For the majority of our employees we offer an Employee Assistance Programme, which is an entirely confidential service to help with any problems or questions. We want to encourage diversity, particularly ensuring that our management teams reflect our customer base that is predominantly women. We have a range of policies, practices and diversity training programmes that support equal opportunities and aim to create a work environment free from harassment or bullying.

A fair deal Our final focus as a reputable employer is to ensure that there is a fair deal between The Body Shop and our employees. We are fully committed to ensuring that basic labour standards such as non-discrimination, freedom of association, freedom from harassment and fair remuneration are adhered to. For example, in 2004, The Body Shop in the UK discovered that its salaries were not as competitive as they could be. We therefore designed a three-year reward strategy that delivers a minimum 20% increase on base salary for our store staff and moves our managers and assistant managers to above the median pay rate for the role. The success of this reward strategy has been a significant factor in a reduced employee turnover. On the basis of our good results in the UK, we will benchmark our pay levels globally in 2007 and 2008. There is no globally agreed living wage, but we will look to current best practice to ensure that all of our employees earn a fair living.

We also work closely with employee representative bodies to develop agreed ways of working. For example, the Works Council for our European business is an elected body and acts as a partner for us to discuss, agree and deliver a healthy and motivational work

environment for our people across Europe.

The collective purpose of all these activities is not only to ensure that The Body Shop is regarded as an “Employer of Choice” by new and existing employees, but that we also have the practices in place, which allow us to live up to The Body Shop Values. While we want to continue to improve we can already see the results of our efforts. In 2005, we set targets to reduce employee turnover in the US by 10% and in the UK by 15% by 2006. By year-end 2006, total US turnover was 84% of 2005 levels and UK turnover 76%, exceeding our targets.

Stakeholder comment from an employee representative

Our core Values. Each and every one of paramount importance if we are to work towards a better world.

Though all on the stakeholder panel subscribe to the combined importance of these Values, each of us, I am sure, have those that are closer to our hearts and minds and souls than others. We are, after all, human, with all the preferences and attitudes that entails. I too hold these very dear, and while they are listed separately within our stated Values, I believe they greatly overlap.

My focus is a local one. A very local one. So local, in fact, that it is here. Here in the workplace. Here in our warehouses, here in our offices, here in our retail outlets and in the human resources (how I hate that phrase, but sadly it is the phrase now recognised!) of our suppliers, whether these suppliers be the suppliers of goods or services or people.

Whilst this may seem parochial when compared with the global aspect of this report, it is nonetheless important. In fact it is fundamental. After all, if we can’t activate self-esteem, if we can’t defend human rights in our own internal world, if we can’t activate the self-esteem, the human rights, of our own employees, then to take such Values, to fly the flag of such Values solely in the outside world, would be nothing short of hypocrisy. And hypocrisy is not a value of The Body Shop.

So how do we go about this? Well, training is a good place to start.

Training in our values. Training in their importance. These values are the very basis of our business. Training in how these values can effectively be introduced and executed into and in our day-to-day working environment. Training in people management for the people managers. Leadership. Ensuring that the right person is in the right job at each business level. Ensuring that employees’ concerns are important to us as a business and that these concerns are listened to. Training in the most basic and obvious fact. A fact sadly and often ignored in this age of the computer.

That fact is

PEOPLE

Despite our technological advance, despite our undoubted hi-tech capabilities, we need people. Fact. Without people, without the physical and mental input of people, people at every level of the organisation, from the lowest level to the highest, without people there would be no organisation. There would be no business. Full Stop.

We all matter. We are all valuable. We all need to feel that value. We all need self-esteem. We all have human rights.

Harry Hughes Employee Representative, UK CRC and European Works Council

What does Defending Human Rights mean for our suppliers?

Our Ethical Trade programme focuses on working in partnership with our first tier suppliers to continually improve working conditions. This approach has produced good results and brought about positive change. We regularly assess suppliers against our Code of Conduct, using questionnaires and site visits. We require that all of suppliers ensure that:

• No-one should be forced to work • Workers should be able to join and form trade unions • Working conditions should be safe and healthy • Child labour should not be used • People do not work excessive hours • Workers should earn enough to live on • Workers should be treated equally, regardless of who they are and what they believe • Where possible, workers should be provided with regular employment • Workers should not be verbally, physically or sexually abused or disciplined.

If issues are found, where our standards have not been met, we agree corrective action plans, monitor the factory’s progress and verify its completion through desktop analysis or further visits if necessary.

Our Ethical Trading programme has been developed in collaboration with the Ethical Trading Initiative (ETI), a group of commercial companies, NGOs and trade unions that strive to progressively improve working conditions in suppliers around the world. Over the past year, we have contributed to a number of projects designed to improve the effectiveness of ethical trade programmes. In particular, we are reviewing whether purchasing practices and short lead times in the cosmetics industry may undermine suppliers’ abilities to provide decent working conditions. In addition, we are looking at how to increase audit effectiveness in Chinese factories and ensure that audit results will help bring about lasting improvements.

We are also members of the Supplier Ethical Data Exchange (SEDEX), where we work collectively with other retailers to maintain the quality of the assessments we use to evaluate working conditions. By using SEDEX we also help to reduce the number of supplier audits undertaken.

What have we achieved since 2005? In 2006, our suppliers employed more than 30,000 workers in 22 countries. Our Ethical Trade programme seeks to ensure that regardless of where our suppliers are based, working conditions meet our Ethical Trade standards. Every supplier completed a SEDEX based self-assessment questionnaire in 2006, with 78% of these verified by a site visit. And we have improved our internal reporting so that we know that we only trade with suppliers who commit to improving working conditions.

All suppliers are physically inspected by either BSI or a third party. Ethical audits are carried out on all high risk suppliers, for example those based in China and Eastern Europe on an annual basis. All low risk suppliers – those based in Western Europe and North America – are ethically audited every two years. Follow-up visits to suppliers take place to ensure that any non-compliance identified during an audit is remediated. (To read more about our risk rating of suppliers, please see our 2005 Values Report).

Through this integrated approach we have seen a great improvement in the ethical performance of our suppliers. In 2006 we considerably reduced the number of high risk non-compliances found and 86% of our suppliers met all our Ethical Trade standards. While 14% of suppliers have at least one non-compliance, they all have action plans in place to meet our standards in a given timeframe.

Since 2005, we have provided technical support to suppliers on the requirements of our ethical trade programme. This has renewed suppliers’ commitment to our standards and as a result, we have seen the number of disengagements reduce over the past years, from five in 2004 and two in 2005 to only one in 2006.

Making a difference During the last two years we have see a number of positive changes to workers’ lives that have come about as a result of our Ethical Trade programme. These include:

Improved communication between workers and management

ETI Base Code Ethical Standard (based on ILO conventions)

Number of non-compliances against standard.

(% of factories with specified non compliance)

High Risk Country

Low & Medium Risk

Country

No-one should be forced to work 1 (4%) 1 (3%)

Workers should be able to join and form trade unions

0 (0%) 4 (15%)

Working conditions should be safe and healthy 6 (29%) 9 (33%)

Child labour should not be used 1 (4%) 1 (3%)

Workers should earn enough to live on 5 (24%) 2 (7%)

People do not work excessive hours 6 (29%) 3 (11%)

Workers should be treated equally, regardless of who they are and what they believe

1 (4%) 3 (11%)

Where possible, workers are provided with regular employment

0 (0%) 1 (3%)

Workers should not be verbally, physically or sexually abused or disciplined

1 (4%) 3 (11%)

When we first visited a Home Fragrance factory in France there was no facility for employees to communicate collectively with management. Workers were keen to set up regular meetings with management to discuss their employment terms and conditions. As a result of our visit regular meetings now take place and workers feel more informed and valued in the workplace.

Improved health & safety conditions During an assessment of a Gift factory in China, it was found that fire safety standards were inadequate. Following discussions with management and workers these were improved, smoke detectors and fire extinguishers were installed and staff trained in fire safety. Now employees are confident that they work in a safe environment.

Increased wages and benefits In an accessory supplier’s factory in China workers were not being paid appropriate overtime rates. During our ethical assessment we informed management that we could only trade with them if they resolved this issue. Now all 600 employees are paid appropriate overtime premiums and their salaries have increased significantly. The supplier has installed a time recording system in order to provide ongoing, accurate records that will ensure workers are paid for the hours they worked at the correct rate.

Improvements for the future We will continue to ensure that we undertake regular assessments, support suppliers in remediating non-compliances within a demonstrated timeframe, and only source from suppliers who are committed to continually improving the working conditions of their employees.

Links: The Body Shop Code of Conduct for Suppliers The Ethical Trading Initiative

Stakeholder comment from Oxfam

For a development NGO like Oxfam, the importance of The Body Shop is that it demonstrates to all businesses that it is possible to be profitable and ethical.

The Body Shop led the way in showing that corporate responsibility is about what a company does every minute of every day, not something that can be tacked on as an afterthought. The 2007 Values Report reaffirms that The Body Shop’s values are integral to its work.

2007 may mark a turning point for The Body Shop. The world has changed since The Body Shop was founded: ethically traded and ‘green’ products now fill the shelves of supermarkets and other shops, and many companies are beginning to reduce their impact on global climate change. This means that where The Body Shop was once a trailblazer, other companies have caught up.

So, where might The Body Shop look to excel?

Firstly, The Body Shop’s adherence to the Ethical Trade Initiative’s Base Code is a welcome guarantee that its immediate suppliers provide their employees with decent terms and conditions of employment. But what happens if those suppliers receive materials from companies that do not treat their workers so well? The Body Shop has an opportunity to ensure that decent waged work is the norm throughout its entire supply chains. Doing so will not be easy, will require time and innovative thinking, but provides The Body Shop with an opportunity to change lives for the better. Closer to home, I would like to see more evidence in future reports that the same values that The Body Shop demands of it’s suppliers are fully implemented amongst company’s own employees.

Secondly, The Body Shop’s Community Trade programme has pioneered a business model that allows communities to trade their way out of poverty. The Body Shop’s scale of commitment to trade ethically in ingredients, gifts and accessories remains beyond that of other cosmetics retailers. However, in other sectors, such as food

(and albeit only in certain markets such as the UK), responsible trading has rocketed into the mainstream. What is not so clear is how The Body Shop will respond to the newly ethical high street. How much of The Body Shop’s ingredients should come from small-scale community enterprises? Can product formulations be re-vamped to allow more ingredients to come from cooperatives and community associations? Would more visible alliances with other socially and ecologically responsible trading schemes bring greater benefits to a wider range of community enterprises?

Finally, The Body Shop is right in identifying global climate change as a reality, and to commit to reducing its greenhouse gas emissions. But it is also true that people living in poverty will be worst affected by climate change. With its close relationship with community trade partners, The Body Shop is in a unique position to work with them to ensure that they become part of the solution to, rather than victims of, climate change.

In short, The Body Shop, now owned by L’Oreal, must retain its desire to bring about positive social change. The challenge is for the company to continue to lead on the values that give the company its identity.

Dr Steve Jennings, Global Livelihoods Adviser, Oxfam GB

Spray to Change

As HIV and AIDS continues to spread, the generation most at threat is the world’s youth. According to UNAIDS, young adults under the age of 25 account for more than half of all new HIV infections each year. In 2003, UNAIDS reported that approximately one third, or 12.1 million, of those estimated to be living with HIV/AIDS worldwide were under the age of 25. There are almost 6,000 infections per day among 15-24 year olds, one every 15 seconds. Youth are at the greatest risk of contracting HIV and prevention is key to stemming the spread.

The Body Shop has a long history of campaigning to raise awareness and funds to support those affected by HIV and Aids. In 2007 The Body Shop and MTV formed a partnership to launch a new global campaign, which reached out to young people and provided strong messages to increase their knowledge and awareness about HIV and AIDS. In addition to the crucial aim of creating higher awareness among the target groups, we developed the Rougeberry fragrance to raise funds for the campaign.

Working together means we are stronger and that we maximise the opportunity to use the power of our global brands to reach millions of people through a unified call to action.

Awareness raising Knowledge is the key weapon in stopping the spread of HIV and AIDS. The campaign has achieved awareness-raising and open discussion on a global scale. It was launched in 47 countries and ran in 2,048 The Body Shop stores. Each store carried extensive in store promotion including educational leaflets that provided basic facts about HIV and AIDS, how to stay safe, and further sources of information such as The Staying Alive Foundation website.

In every country the campaign was supported by multi-platform marketing and PR promotion created and executed jointly by MTV and The Body Shop. For example, in the UK R&B singer Jamelia was the 'face' of the Rougeberry fragrance as she is a popular celebrity with the target market. She was also able to talk freely about safe sex and encourage young people to carry condoms. MTV and The Body Shop conducted a poll on mtv.co.uk asking young women aged between 16 and 30 about their attitudes towards sex. With 1,064 respondents, the poll revealed that 70% of young women don’t believe that they are at risk of contracting HIV. The results were widely covered in the press.

In Korea a localised microsite was created especially for the

campaign. In addition a Public Service Announcement was produced using national celebrities. A television ad aired on MTV channels over 5,000 times promoting the campaign to a potential 1.4 billion people and a global MySpace page (myspace.com/spraytochange) helped to spread the word online, reaching more than 20,000 people. A specially created global website www.spraytochangeattitudes.com was created which is linked to by MTV and The Body Shop websites around the world and itself links to the Staying Alive website.

Fundraising Proceeds from the sale of every Rougeberry fragrance go to The Staying Alive Foundation – a charity founded by MTV International promoting and supporting young people who are protecting themselves and their communities against the multiple threats posed by HIV and AIDS. Studies show that young people are most receptive to messages about HIV prevention from their peers, so the Staying Alive Awards support prevention projects that young people create for, and with, others. The Foundation launched in January 2005 as a global grant making and advocacy organisation and has been able to support some amazing projects in communities around the world where HIV and AIDS is hitting hardest.

For example, with help from generous partners, on World AIDS Day 2006 The Staying Alive Foundation provided grants to a total of 18 individuals and organisations. The China Youth Network was one of these. The China Youth Network won a 2005 award for the life-skills training that Hang Can, a young volunteer, conducted for ethnic minorities. With their 2006 award, one of Hang's peers, Liu Chenghao will expand the Youth Network's reach by developing a peer education system in the hard-to-reach, ethnically diverse communities of Guizhou and Qinhai that will include culturally adapted HIV/AIDS education materials for at risk youth.

The Body Shop employees around the world have nominated local groups of young people, in the developed and developing world, to apply for the awards made possible by the Spray to Change Campaign.

Campaign partner comment from MTV Networks International

MTV has been involved in promoting awareness of AIDS and prevention of HIV infection for over 25 years. We have invested in programming and on-the-ground projects which highlight HIV prevention messages, address the stigma of safe sex and the discrimination of people living with AIDS. We always look to empower our audiences so that they can make their own choices for themselves, their partners, and within their communities.

For MTV, producing a campaign with The Body Shop was an opportunity that felt very natural: we have similar Values and aims, especially with regard to HIV/AIDS, and working together with one voice meant that we could reach both MTV’s audience and The Body Shop customers at the same time, using MTV’s network of 56 channels, and the Company’s 2045 stores, allowing both businesses to impact even larger numbers of people than by working alone.

It is never easy to partner on a project like this, and perhaps the most challenging aspect was the timeline: retailers and broadcasters don’t tend to work on the same timelines as each other! But from the start, the two companies had set out a clear goal and vision of what we wanted to achieve, and how we wanted to do it. We ensured that the project leaders had very clear guidelines and strong communication channels to make sure that where there were potential issues, we could work our way around them in as short a period of time as possible.

One of the smaller, but crucial aspects of the project was the communication about Spray to Change to MTV & The Body Shop staff: this meant that we had full buy-in from the very top of both companies (MTVN vice-chairman Bill Roedy & Anita Roddick launched the campaign) through to all employees around the world. This conjoined communication meant that staff from both companies had the opportunity to work on the project, whether through the initial creation of the campaign, to the in-store marketing & press activities, youth discussions, media pieces, celebrity endorsements, numerous digital activities and of course, the selling of the perfume. There was

huge creativity and commitment from both sides, and this helped to see the campaign successfully through from its creative inception through to the launch.

Spray to Change was an inspiring project for all involved, and MTV Networks is very proud to have partnered with The Body Shop on it.

Georgia Arnold, MTV Networks International

Stop Violence in the Home

Domestic violence is one of the greatest human rights violations of our time affecting one in three women around the world at some point in their life.

The Body Shop campaign Stop Violence in the Home is the flagship global campaign of The Body Shop. It is designed to raise funds to help those affected and to increase awareness of an issue that remains hidden behind closed doors.

In 2004 the campaign had been launched in three countries. By 2005 it had reached 40 countries. In 2006 the campaign ran in 47 countries.

Domestic violence and children For the 2006 campaign we wanted to focus our attention on a specific group of people who are affected by domestic violence – children.

From speaking to our NGO partners around the world we knew that the impact on children was significant. However, we could find no data to show how many children were affected and the impact the issue had on their lives.

So, in May 2005, The Body Shop approached UNICEF and the Secretariat for the United Nations Secretary-General’s Study on Violence against Children who were producing a report for the UN on the wider issue of violence and children. Together we agreed to create a piece of work as part of this report to document the effects on children of being exposed to domestic violence.

The result of our partnership is ‘Behind Closed Doors – The Impact of Domestic Violence on Children’. The report, the first global study of its kind, revealed the devastating and lasting impact on children of living with domestic violence, conservatively estimating that up to 275

million children worldwide are exposed to domestic violence. Even if children are not directly abused in the home, the experience of witnessing abuse has profound effects on their wellbeing and development.

The Body Shop campaign around the world The report makes several recommendations on the steps to be taken to ensure children have a home environment that is safe, secure and free of violence. The national campaign activities from The Body Shop markets were based around these recommendations.

Raising Awareness of the impact of domestic violence on children The report tells us “Much can be changed by bringing this problem into the open”. The actions of The Body Shop markets across the world raise public awareness of the problem in unique and innovative ways.

In New Zealand for example, the campaign launched on 1 August with an all-day concert attended by over 8,000 people, including celebrities and sports personalities.

One of the successes of the 2006 campaign was the launch for the first time in every Middle Eastern country that The Body Shop operates in, with the support of their governments and UNICEF. The Middle East is a challenging area for domestic violence campaigning and by raising awareness and funds on this issue The Body Shop is making unprecedented headway in these countries. All funds raised will help UNICEF create a telephone helpline for children affected by domestic violence – a first for this region of the world.

Enhance social services that address the impact of violence in the home The report tells us that many of the support services for women escaping domestic violence offer little in the way of facilities or services for children.

In Greece the funds raised went to THE SMILE OF CHILDE a volunteer and not for profit organisation aiming to protect children’s rights. The Smile of Childe will use the funds raised to build a playground and study room for the children.

Raising funds Raising awareness means more people ask for help from the not-for-profit agencies providing services to those affected. Therefore a key element of the campaign is for each market to link with a local or national agency and raise funds to enable them to increase or improve the services they provide.

Since August 2006, the campaign has raised over £580,000 through the sale of the Mint lip care stick and Daisy soap, both products specially created and designed for the campaign.

Campaign partner comment from UNICEF

“No violence against children is justifiable” and “ All violence against children is preventable”.

This is the key message delivered from the report of the United Nations (UN) Study on Violence against Children, launched at the UN General Assembly in New York in October 2006. Over the past three years a huge range of stakeholders worldwide worked with the independent expert Paulo Pinheiro to create a groundswell of support to stop violence against children. The report highlighted the full range of violence against children across all settings, including at school, in institutions, at work, in the community, and perhaps the most difficult setting to address – the home and family.

The joint campaign of the UN Study with UNICEF and The Body Shop International plc was able to contribute to putting a stop to all forms of violence against children. While a great deal of progress has been made on preventing and responding to violence against women, and quite specifically in the home, children are still too often forgotten. This joint campaign sought to break down some of the barriers to positive action, and to consider a focus on putting the best interests of the child at the centre.

This campaign reached across the globe to address a problem that is truly global. There is no corner of the world that is not touched by violence, and children (and women) tend to be the most affected and least protected. Experience has shown that economic development does not guarantee greater protection for children and their rights; rather a specific focus on protecting children is necessary to ensure their situation is recognised and addressed appropriately.

The report that was produced as a central tool for this campaign was also a contribution to the larger United Nations Study on Violence against Children. This UN report was considered at the UN General Assembly in October 2006, and Governments recommended follow up on the recommendations of the Study. This means that UN agencies and their civil society partners will continue to work with governments around the world to focus on reducing violence against

children, and would seek to continue to engage private sector partners like The Body Shop in the process.

In addition to the awareness raising and funding element which The Body Shop has itself reported on thoroughly in the very useful Special Issue of “EVERYBODY” in December 2006, the report has also influenced other processes such as the Commission on the Status of Women which has decided for the first time to focus on violence against girls (rather than women) – including in the home – over the next five years. This huge and formalised global network stems from the international convention on the elimination of discrimination against women and involves a range of UN agencies as well as academics and civil society organisations all over the world whose recommendations are brought to the General Assembly.

Amaya Gillespie, UNICEF

Addressing Climate Change

The planet is getting warmer and the weather as we know it is changing. This is leading to rising sea levels, widespread flooding, droughts, and the spread of tropical diseases. Scientists are describing climate change as the most serious threat facing our planet today.

Global warming, which leads to climate change, is caused by a build up in the blanket of gases that surround our planet. The main gas causing the problem is carbon dioxide (CO2). Virtually every human activity produces CO2, from driving our cars to heating or air-conditioning our homes. This is because CO2 is released when we burn fuels such as oil, gas and coal to make electricity, or to power our cars and planes.

The Body Shop took its first step in addressing climate change in 2001, when a joint campaign run in partnership with Greenpeace International helped highlight the importance of renewable energy in the fight against global warming. We also supported the development of more renewables by investing in a wind farm in Wales. However, over the past few years, our progress in this area has not been as significant as we would have liked given the size of the challenge ahead. In 2006, we therefore took our second step when we decided to become a carbon neutral retailer by 2010.

Defining ‘carbon neutral retailer’ Carbon neutral to us does not simply mean buying offset. This claim is only meaningful if we can make deep cuts in our energy use through significant changes in behaviour and in the technology we use to run our business. We have to look at how we transport our goods, how we light our stores, how we cut our travel. We have to influence our suppliers, help our franchisees or learn from them. We have to discuss our plans with our stakeholders to understand if we are on the right track and listen to other companies’ experiences in how to make the biggest difference.

We believe that getting our own house in order first is crucial. We can

only ask others to join us, once we have examples to share. Our initial target is therefore to ensure that carbon dioxide emissions from our company-owned retail business worldwide are carbon neutral. This includes emissions from running our offices and warehouse, business travel and the emissions incurred in shipping goods to company-owned stores or to our The Body Shop At Home™ consultants and our online customers.

Once we have made significant improvements in our direct emissions that we can control, we will look at our indirect emissions where we have some influence. For example, we learn from those franchisees who are already tackling the issue and will support other franchisees in managing their own carbon emissions as well as working with our suppliers, particularly those who manufacture our products and packaging. We will also help staff to make a difference at home.

Sources of our CO2 emissions The following diagram is an estimated breakdown of our global CO2 emissions:

Hierarchy of action: reduce, replace, offset Our strategy is simple: we will start by reducing energy use wherever we can. Over the past year we have examined where we can save energy in our stores, offices and warehouses, how we can transport our products more efficiently, and how we can reduce our use of air travel and shipping. We are now setting energy reduction targets for all of our markets. We are also looking at improving the design of our stores to increase their energy efficiency.

The next step is to ensure that wherever possible the energy we use does not come from fossil fuels. In the markets where it is possible to choose a renewable energy tariff we have switched our stores and offices. In our company-operated markets, 60% of UK’s, 85% of the Netherlands’ and 90% of France’s energy use now come from guaranteed renewable sources, and we are looking at switching additional markets in the course of 2007. Our Swiss franchisee has gone even further by going 100% carbon neutral. We have also changed our car policy to ensure that all new company vehicles are hybrid models, saving up to 30% of our emissions.

The third step, and a last resort in our strategy, is offsetting emissions. While we aim to ensure that offsetting will only form a small part of our total strategy, we still screen our investments carefully to ensure that the projects we support are aligned to our Values and provide real environmental and social benefits. In 2006 we offset our business air travel (2,325 tonnes of CO2) by funding non-tree planting projects through The CarbonNeutral Company using a mixture of Clean Development Mechanism (CDM) and non-

CDM verified projects, all of which are externally verified by KPMG.

2005/6 offset projects:

1. Hydro power generation in Bulgaria

2. Providing solar panels to villages in Sri Lanka and India

3. E+Co, renewable energy projects in East Africa

While we will continue to demonstrate support for the CDM concept, we also plan to consider high quality projects that are not part of this mechanism. Often, the scale of many small but effective projects mean that they are not CDM verified.

For a company operating in 55 markets at high street level, becoming carbon neutral is a huge undertaking. We are also aware that new challenges related to new technologies, offsets or renewables appear continuously, and we need to address these. For example, recent discussions highlight the potentially devastating effect of biofuels on forests and food supply. To address such issues, we are constantly reviewing our strategy to ensure we maintain credible investments in line with the latest thinking and will publish at least annual updates on our progress.

Links: Climate Change position (To be published in early July) IPPC WWF Carbon Calculator

Stakeholder comment from Greenpeace

The association between Greenpeace and The Body Shop goes back a long way. We first worked together to help save the whale and more recently to campaign for clean, renewable energy.

Anita and Gordon Roddick's deeply held Values on social and environmental issues were integral to The Body Shop and gave The Body Shop its 'green' brand. It inspired many activists and business people alike. It was truly cutting edge and way ahead of its time as a major high street brand. Where The Body Shop went others followed, usually way behind. Whether it was animal testing or Community Trade programmes, or human rights or investing in wind farms to offset CO2 emissions, The Body Shop got there first.

It's a real tribute to the Company that it continues to strive for improved performance of the Values that go to the heart of the Company. But as it does so it faces many challenges not just from competitors trying to copy it but also in dealing with a globalised world where keeping down costs of production can clash with environmental and social beliefs.

It means having to make tough decisions that will enable The Body Shop to be a profitable business but at the same time socially and ethically responsible. It will mean taking its customers with it on a journey that will deepen its core Values and customer and staff loyalty rather than look to short term profit.

And as climate change begins to impact on the communities it works with in the developing countries it will need to find new ways of sustaining those communities while at the same time massively reducing the emissions of its own business operations.

Greenpeace welcomes the 2007 Values Report as a step in the right direction and hopes that future progress will keep The Body Shop at the cutting edge. . John Sauven Acting Executive Director, Greenpeace

Sustainable Ingredients – a campaign for forests, wildlife and decency

All of our products are inspired by nature. We draw on the natural properties of ingredients, used for centuries in all parts of the world as traditional remedies, to moisturise, cleanse or create wonderful scents.

But in harvesting these natural ingredients, we know we must always ensure that we do not upset nature’s delicate balance. We want to contribute to sustainable development – “meeting the needs of our generation without compromising needs of future generations“.

For our Community Trade ingredients such as honey, marula and soy this means establishing close relationships with suppliers, and knowing exactly where each ingredient originates. In other cases, we have decided to work with companies and campaigners to bring about changes in the wider industry to avoid large-scale environmental degradation, human rights abuses and loss of wildlife.

Driving change – sustainable palm oil Palm oil is the world’s second most used vegetable oil, with an annual production of 400 million tonnes. Millions of people rely on palm oil for their livelihood and for nutrition. However, palm oil has recently been highlighted as a crop that is often grown on deforested land, destroying fragile ecosystems and wildlife and linked to severe human rights and worker abuses.

Over the past three years, we have taken a leading role in the Roundtable on Sustainable Palm Oil (RSPO), working alongside NGOs such as Oxfam and WWF, plantations and other actors in our supply chain to change the way palm oil is grown and plantations are managed. This has resulted in a groundbreaking standard for the production of sustainable palm oil, taking into account all aspects of biodiversity and human rights.

The roundtable has been successful in bringing together the business sector and NGOs to tackle the problem and create a more sustainable approach. More than 40% of the world’s palm oil production is now represented in the initiative and some of the world’s largest consumer brands and retailers have joined the RSPO,

sending a clear signal that there is a demand for sustainable palm oil. In particular, we are delighted that L'Oréal joined the RSPO at the beginning of 2007.

Through the roundtable we have helped develop high standards. We have provided practical advice on human rights to plantations and The Body Shop Foundation has co-funded important work to make sure small-scale farmers are not disadvantaged by the RSPO standard.

We expect fully certified RSPO palm oil to become available by the end of 2007. However, we want to improve the situation as soon as possible and are therefore moving ahead to lead the campaign for sustainable palm oil. In June 2007 we became the first cosmetics company to source traceable, sustainable palm oil. We have changed our entire soap range to be manufactured using palm oil from one of the leading sustainable plantations – Daabon in Colombia. We have commissioned our own audit and visited the plantation to ensure that the protection and welfare of communities, workers and the surrounding jungle is preserved and promoted.

Daabon is committed to applying for RSPO certification as soon as the standard is finalised, but in the meantime, we want to ensure that we do not contribute to further deforestation but instead promote sustainable palm oil. We hope this will encourage others to do likewise.

Supporting sustainable forestry The Body Shop is committed to promoting sustainable sources of renewable raw materials. Over the past 35 years wood consumption has doubled and we've lost half the world's forest land, causing loss of endangered wildlife and depriving indigenous populations of land and livelihood.

Although The Body Shop buys only small volumes of wood-based products, for example for eye-pencils and massagers, we want to make sure that our wood use does not contribute to deforestation and that by promoting sustainable wood we encourage others to support environmentally and socially responsible forestry. We support FSC (Forest Stewardship Council) certified wood wherever we can. Our target is to sell only wood products made from FSC wood by the end of 2010. We are well on the way to achieving this, as the major part of our non-Community Trade wood accessories are now FSC certified. The exception is mainly eye pencils and these are due to be made with FSC certified wood from 2007. FSC certified forests are managed to ensure long term timber supplies while protecting the environment and the lives of forest-dependent peoples. So the FSC logo enables customers to buy wood products with confidence they are not contributing to global forest destruction.

We also look at wood use in our stores. Where wood is used in shop fits, all new components must be FSC certified if commercially available. Existing components are not replaced, as this would contribute to unnecessary resource use.

Responsible chemicals use

The Body Shop has always taken a strong position on the use of chemicals in product formulations and the environmental impact of our products and packaging. The Body Shop adopts a precautionary approach to the use of chemicals and as early as 1993, we pledged to ban PVC from our packaging and products. In 2005, we were the first global retailer to commit to a firm timeline for phasing out polycyclic musks and phthalates.

Over the past five years, The Body Shop has seen a significant growth in consumer awareness and NGO activity around the use of chemicals in consumer products. While this trend was originally confined to Northern Europe and Scandinavia, we are seeing growth in customer enquiries from other parts of Europe, the USA and Canada.

Responsiveness and transparency To understand customers’ concerns, The Body Shop has proactively engaged with NGOs pursuing chemicals campaigns, including Greenpeace in Europe, and the Campaign for Safe Cosmetics and WWF in the USA.

To address the concerns raised, we committed to the phasing out of phthalates by 2006, and polycyclic musks by 2010. We are well on track to reach our target on polycyclic musks, which are now found in only nine of our products. Despite our efforts, we did not quite reach our phthalate target, as one formulation still contained phthalates at the end of 2006, although this will be removed by the end of 2007. This delay has occurred because it has taken slightly longer to match the exact fragrance for one of our most popular products.

We also published a publicly available chemicals policy and strategy, which include explicit positioning statements on chemicals of concern to campaigners.

A best in class approach We are proud to see that our approach has been recognised as progressive and best in class by environmental and consumer groups. In early 2007, Greenpeace in Europe published a comprehensive report into their three-year campaign on Chemicals in the House. The Body Shop was highlighted throughout the report for our continued progress. Likewise, we received considerable praise for our policies in a report from Innovest, an ethical investment research agency, which places The Body Shop at the top of their benchmark.

Offering consumer choice As new chemicals come under scrutiny, we remain committed to listening to stakeholders and working with them to find the best solutions. One example is the discussion around parabens – a group of chemicals long used as preservatives in the cosmetics industry. In our view, the scientific evidence that parabens should be of concern is weak or non-existent. However, to create a clear choice for our customers, we have looked into alternative solutions, and in 2006 we launched the Aloe range – of skin care and bath and body products which are fragrance-, colour- and preservative-free. Over the coming years, we will be launching more preservative-free products to ensure that consumers are provided with an even greater choice.

We believe it is important to provide customers with the information they need to make purchasing decisions and ingredients will always be clearly labelled. As part of our commitment to the Campaign for Safe Cosmetics we have recently signed up to add our products to the Skin Deep database, a US based resource for consumers and NGOs rating thousands of cosmetics products, run by the Environmental Working Group. This will enable our customers to see how their favourite The Body Shop® products fare against competing brands.

Packaging – exploring routes to minimal waste

The Body Shop has always been widely recognised for our unique approach to packaging. We use only the packaging necessary to keep the product fresh and intact, and in some cases to include important legal or consumer information.

Over the years The Body Shop has piloted a number of the many ways in which we can reduce the amount of resource use associated with our packaging. In some cases we have found that the solution for reducing our environmental impact has to take into account other issues, such as mode of transport or how the customer will use or dispose of the packaging. Reduce The first rule of packaging at The Body Shop is to use as little as possible. For the vast majority of products we use simple bottles and jars, with no secondary packaging. Less than 3% of our products come in separate cartons, for example where legislation requires secondary packaging (such as essential oils) or we need to include consumer information. In these cases we will always use recyclable cardboard made from recycled or sustainable forest materials.

Reuse In the past, we offered customers the option of refilling products. Unfortunately, we found that very few customers (less than 1%) were using this option. In addition, refilling is potentially hazardous as containers may inadvertently become contaminated with other substances. We therefore stopped refilling in 2001.

However, we still encourage reuse of our packaging. Most of our gift packaging, for example, can be used again – some of the beautiful Community Trade boxes even as gifts in themselves. In addition we launched a “Bag of Passion” or “Bag for Life” – a sturdy and attractive shopping bag that can be reused indefinitely. It is made by Teddy Exports, one of our Community Trade suppliers with proceeds going to good causes.

Recycled packaging This is a key area for our packaging policy. For a global business operating in over 2,200 locations with varying local facilities, relying on recycling to reduce the environmental impact of our packaging is not always practical. Using recycled material, we can cut the overall resource use significantly, without depending on customers to bring back bottles.

At the end of 2006, all of our PET bottles contained 30% recycled material and we will at least double this by the end of 2008. In 2006, we also launched a full new make-up range and managed to include recycled material in 73% of the packaging. Over the coming years, our packaging team will aim to go even further by working closely with our packaging suppliers.

Alternative materials We are always on the lookout for new materials that reduce our resource use and generate less waste. Since most of our products are liquid and need to be stored in vastly different climates, our options are limited. We are reviewing options such as cornstarch and we have recently replaced our carrier bags with a new type of degradable plastic.

Recycling Most of our packaging can be recycled through standard household and business recycling systems. We operate in a huge variety of different markets, where recycling facilities vary greatly. Many of our stores across the world continue to support recycling, by offering to take back bottles. In New Zealand, stores make a huge effort by offering recycling of types of plastic currently not supported by household recycling schemes. In Taiwan, The Body Shop encourages recycling through product discounts for returned packaging, and in Australia and West Malaysia customers are reminded to recycle through campaigns to “Bring ‘em back” and encouraged by staff to recycle.

However, in some markets, we have had to reassess our priorities and the net impact of our initiatives. In the vast majority of our markets, recycling is not widely available, so we cannot offer this service. In other markets, we found that few customers used the service.

In 2006, we had the opportunity to reorganise our transport in the UK to stores, increasing the mileage efficiency of our fleet and saving 230 tonnes of carbon emissions per year. An unfortunate side effect of this is that we no longer have trucks coming back to our warehouse with recycling waste. Driving a limited amount of PET bottles across the country for recycling simply did not make environmental sense. However, although we have instructed store managers to ensure that packaging is recycled locally, doorstep recycling is rarely available for small high street shops.

In the UK we have taken up the challenge and have contacted local authorities to call for better recycling facilities to be set up for smaller high street businesses so we can once more assist those customers without access to recycling facilities.

Assurance: URS Technical briefing

Introduction and approach

URS Corporation Limited (URS) has been commissioned by The Body Shop International (The Body Shop) to provide internal assurance services as part of the overall assurance of their Values Report 2007. A stakeholder panel of independent experts provides formal external assurance of the report. The independence of the Stakeholder Panel (The Panel) is key to the value of this approach to assurance methodology. This briefing represents findings and observations in respect of URS work during January through April 2007 as presented to The Panel by URS on 3 May 2007. Further more detailed feedback including recommendations has been provided to The Body Shop to support this.

Methodology and Responsibilities

The overall assurance process has reflected the three principles of the AA1000 assurance standard: Materiality, Responsiveness and Completeness. The Panel’s focus is to provide a robust third party opinion on materiality and responsiveness of the Values Report 2007 including balance and overall style. URS has been appointed to further strengthen the robustness of this opinion. URS has reviewed the completeness and embeddedness of systems and processes in place for implementing those Values and associated key performance indicators (with a specific focus on climate change data), and provided a technical and factual briefing on our findings to The Panel to consider in the development of its assurance opinion. As part of this process URS was also requested to identify progress since the last review of Values management conducted by URS in 2005. We also reviewed and sought evidence to support performance and factual claims made in the Values Report 2007 based on an early version, and have provided detailed commentary to The Body Shop on the report for consideration in preparation of subsequent versions. The project team members at URS have not been involved in the development of the report nor its associated systems. This briefing provides only a record of observations and findings presented to inform the opinion of The Panel and should not be considered a standalone report or set of opinions to be used as advice or as the sole basis for any decisions, including, without limitation, financial or investment decisions. URS conducted the work through a series of interviews with Group level personnel (15) across a wide range of functions including Human Resources, Product Development, Communications, Values and Environmental Management. Documentation relating to Values strategy and management was also reviewed in preparation for, and subsequent to, these interviews and meetings.

Overall findings: Values Programme

Overall we find there is demonstrated progress in the formalisation of policies and the development of systems and process to support the integration and implementation of Values at a Group level since 2005. These developments vary across the different Value areas; specifically: Activate Self Esteem A formal policy has been developed and communicated covering aspects of Activate Self Esteem both for internal Body Shop employees

as well as other parties the Body Shop is able to influence, such as the wider community. Overall the Body Shop’s activities in this area are recognised externally through high profile campaigns such as Wise Woman and Stop Violence in the Home. With respect to the welfare and self-esteem of BSI employees there are various systems and processes for the implementation of aspects of this Value. Currently these primarily cover The Body Shop’s own employees in the UK and North America. Monitoring of performance has started through the gathering of initial data for most key issues. Against Animal Testing As in 2005, evidence has been provided to demonstrate the full integration of systems and processes for the management of this Value at a Group level. A formal policy has now been developed and communicated and been extended to incorporate animal protection (use of vegetarian products).

Community Trade

A formal policy has been developed and communicated. From discussions and documentation reviewed, the identification and selection of potential Community Trade partners is increasingly demand led. New tools have been developed by The Body Shop to enable demand, supply and performance of suppliers to be tracked and monitored on a regular basis. Where exit is still unavoidable the process for this has also been more clearly defined. Community Trade partners are excluded from The Body Shop’s formal Ethical Trade audit programme. However, there are regular documented visits to partners, during which performance in key areas of ethical business management is assessed. From our discussions we understand that the relationships between The Body Shop and Community Trade partners are based on personal interactions and seek to be trust based. As the Community Trade programme has been expanded, there has been recruitment of additional Community Trade Team staff to support the programme and continue building and maintaining these relationships.

Defend Human Rights

A formal policy has been developed and communicated to define Human Rights for The Body Shop. The policy considers employees, suppliers and the wider community. With respect to suppliers, the Ethical Trade audit process continues to be maintained and new tools have been developed to enable The Body Shop to track and document supplier performance more systematically, as well as close out corrective actions in audits. We have found that the systems and controls for this Value internally relating to employees, to be less well developed than those for Ethical Trade.

Protect Our Planet

An overall policy has been developed and communicated as well as a number of specific policies, for example for chemicals in products and climate change. The systems and controls for the implementation of this Value includes programmes for packaging, chemicals, sustainable raw materials and climate change which are at varying stages of development and integration into the business. Actions on programmes for sourcing sustainable timber, chemicals in products and packaging continue, and more recently the development of internal tracking mechanisms has aided the ongoing management of performance in these areas. We also noted that significant progress has been made in proactively sourcing sustainable palm oil in the last 12 months. Initiatives focused on reducing climate change impacts remain in their infancy.

Overall findings: Values Report 2007

Our scope was to seek evidence to verify factual elements of the 2007 Values Report, which relate to measurable and or documented activities and performance in the implementation of the Body Shops Values. Where evidence has been sought, appropriate information has been provided to verify the claims made. We have not sought to provide comment on or to substantiate more qualitative report claims concerning Values policy developments and aspirations. Based on our discussions and the documents reviewed we consider that the content of the report reflects the overall Values programmes in place at The Body Shop. With respect to data accuracy, as the data collection processes for climate change are still in their infancy we conducted a specific review in this area. Calculation errors were identified in the climate change data, which have since been recalculated and corrected.

GRI Index

This index references the content of the 2007 Values Report, and reflects the extent to which The Body Shop publicly reported on its performance for the financial year 2006.

GRI Indicator Adherence to guidelines? This year

Where this year?

Vision and Strategy

1.1 Statement on the organisations vision and strategy regarding its contribution to sustainable development

Full Welcome

1.2 Statement from the CEO (or equivalent senior manager) describing key elements of the report (impacts, risks and opportunities)

Full Welcome

2.1 Name of reporting organisation Full Who we are

2.2 Primary brands, products and/or services – Should also indicate the nature of its role in providing these products and services, and the degree to which the organisation relies on outsourcing

Full Who we are

2.3 Operational structure of the organization including description of major divisions, operating companies, subsidiaries and joint ventures

Full Who we are

2.4 Location of organisation’s headquarters Full Who we are

2.5 Number of countries where the organization operates, and names of countries with either major operations or that are specifically relevant to the sustainability issues covered in the report.

Full Who we are

2.6 Nature of ownership; legal form Full Who we are

2.7 Markets served (including geographic breakdown, sectors served, and types of customers/ beneficiaries).

Partial Who we are

2.8 Scale of the reporting organization: -Number of employees -Net sales -Total capitalization broken down in terms of debt and equity -Quantity of products or services provided.

Partial Who we are

2.9 Significant changes during the reporting period regarding size, structure, or ownership including: -The location of, or changes in operations, including facility openings, closings, and expansions; and -Changes in the share capital structure and other capital formation, maintenance, and alteration operations.

Full Welcome, Who we are, Governance

2.10 Awards received in the reporting period Full What does human rights mean to our suppliers, REACH and Animal Testing

Report Profile

3.1 Reporting period Full About this report

3.2 Date of most recent previous report Full About this report

3.3 Reporting cycle (annual, biennial, etc.) No

3.4 Contact point for questions regarding the report or its contents.

Full Contact us

Report scope and boundary

3.5 Process for defining report content, including: -Determining materiality; -Prioritizing topics within the report; and -Identifying stakeholders the organization expects to use the report.

Full About this report

3.6 Boundary of the report (e.g., countries, divisions, subsidiaries, leased facilities, joint ventures, suppliers).

Full About this report

3.7 State any specific limitations on the scope or boundary of the reports.

Full About this report. Notes to specific data

3.8 Basis for reporting on joint ventures, subsidiaries, leased facilities, outsourced operations, and other entities that can significantly affect comparability from period to period and/or between organizations.

Full About this report. Notes to specific data

3.9 Data measurement techniques and the bases of calculations, including assumptions and techniques underlying estimations applied to the compilation of the Indicators and other information in the report.

Partial About this report

3.10 Explanation of the effect of any re-statements of information provided in earlier reports, and the reasons for such re-statement (e.g., mergers/ acquisitions, change of base years/periods, nature of business, measurement methods).

Partial About this report. Notes to specific data

3.11 Significant changes from previous reporting periods in the scope, boundary, or measurement methods applied in the report.

Partial About this report. Notes to specific data

3.12 Table identifying the location of the Standard Disclosures in the report. Identify the page numbers or web links where the following can be found: • Strategy and Analysis • Organizational Profile • Report Parameters • Governance, Commitments, and Engagement • Disclosure of Management Approach, per category • Core Performance Indicators • Any GRI Additional Indicators that were included; and • Any GRI Sector Supplement Indicators

Not covered

Assurance

3.13 Policy and current practice with regard to seeking external assurance for the report. If not included in the assurance report accompanying the sustainability report, explain the scope and basis of any external assurance provided. Also explain the relationship between the reporting organization and the assurance provider(s).

Full Combined assurance provided by a stakeholder panel and URS, About this report

Governance

4.1 Governance structure of the organization Full Governance

4.2 Indicate whether the Chair of the highest governance body is also an executive officer

Full Governance

4.3 For organizations that have a unitary board structure, state the number of members of the highest governance body that are independent and/or non-executive members.

Partial Governance

4.4 Mechanisms for shareholders and employees to provide recommendations or direction to the highest governance body

No

4.5 Linkage between compensation for members of the highest governance body, senior managers, and executives and the organization’s performance (including social and environmental performance).

Partial Governance

4.6 Processes in place for the highest governance body to ensure conflicts of interest are avoided.

No

4.7 Process for determining the qualifications and expertise of the members of the highest governance body for guiding the organization’s strategy on economic, environmental, and social topics.

No

4.8 Internally developed statements of mission or values, codes of conduct, and principles relevant to economic, environmental, and social performance and the status of their implementation. Explain the degree to which these: • Are applied across the organization in different regions and department/units; and • Relate to internationally agreed standards.

Full Governance

4.9 Procedures of the highest governance body for overseeing the organization’s identification and management of economic, environmental, and social performance, including relevant risks and opportunities, and adherence or compliance with internationally agreed standards, codes of conduct, and principles.

Full Governance

4.10 Processes for evaluating the highest governance body’s own performance, particularly with respect to economic, environmental, and social performance.

No

Commitments to external initiatives

4.11 Explanation of whether and how the precautionary approach or principle is addressed by the organization. Article 15 of the Rio Principles introduced the precautionary approach. A response to 4.11 could address the organization’s approach to risk management in operational planning or the development and introduction of new products.

Full Chemicals

4.12 Externally developed economic, environmental, and social charters, principles, or other initiatives to which the organization subscribes or endorses.

Full Described in each article

4.13 Memberships in associations (such as industry associations) and/or national/ international advocacy organizations in which the organization: • Has positions in governance bodies; • Participates in projects or committees; • Provides substantive funding beyond routine membership dues; or • Views membership as strategic.

Full Described in each article

Stakeholder engagement

4.14 List of stakeholder groups engaged by the organization.

Full Our stakeholders’

4.15 Basis for identification and selection of stakeholders with whom to engage

Full About this Report Our Stakeholders

4.16 Approaches to stakeholder engagement, including frequency of engagement by type and by stakeholder group.

Full About this Report, Our Stakeholders

4.17 Key topics and concerns that have been raised through stakeholder engagement, and how the organization has responded to those key topics and concerns, including through its reporting.

Full Described in each article and in Our stakeholders

Provide a concise disclosure on the Management Approach items outlined below with reference to the following Economic Aspects: • Economic Performance; • Market Presence; and • Indirect Economic Impacts.

Partial Who we are, Governance

Goals and performance Partial Who we are, Governance

Policy Partial Who we are, Governance

Additional contextual information Partial Who we are, Governance

Economic Performance Indicators

Aspect: economic performance

EC1 Direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments, retained earnings, and payments to capital providers and governments.

Partial Who we are; Community Involvement

EC2 Financial implications and other risks and opportunities for the organization’s activities due to climate change.

No

EC3 Coverage of the organization’s defined benefit plan obligations.

No

EC4 Significant financial assistance received from government.

No No significant assistance received in the reporting year

Aspect: market presence

EC5 Range of ratios of standard entry level wage compared to local minimum wage at significant locations of operation.

Partial Our employees

EC6 Policy, practices, and proportion of spending on locally-based suppliers at significant locations of operation.

No

EC7 Procedures for local hiring and proportion of senior management hired from the local community at locations of significant operation.

No

Aspect: indirect economic impacts core

EC8 Development and impact of infrastructure investments and services provided primarily for public benefit through commercial, in kind, or pro bono engagement.

Full Community Trade section, Spray to Change and SVITH

EC9 Understanding and describing significant indirect economic impacts, including the extent of impacts.

Partial Community Trade Principles and Challenges

Disclosure on Management Approach Provide a concise disclosure on the Management Approach items outlined below with reference to the following Environmental Aspects: • Materials; • Energy; • Water; • Biodiversity; • Emissions, Effluents, and Waste; • Products and Services; • Compliance; • Transport; and • Overall

Partial Protect our Planet Section

Goals and performance Full Protect our Planet Section

Policy Full Protect our Planet Section

Organizational responsibility Full Governance

Training and awareness Partial Values strategy

Monitoring and follow up Full Protect our Planet Section

Additional contextual information Full Protect our Planet Section

Environmental Performance Indicators

Aspect: materials

EN1 Materials used by weight or volume. No

EN2 Percentage of materials used that are recycled input materials.

Partial Packaging

Aspect: energy

EN3 Direct energy consumption by primary energy source.

Partial Climate Change

EN4 Indirect energy consumption by primary source.

No

EN5 Energy saved due to conservation and efficiency improvements.

Partial Climate Change

EN6 Initiatives to provide energy-efficient or renewable energy based products and services, and reductions in energy requirements as a result of these initiatives.

No

EN7 Initiatives to reduce indirect energy consumption and reductions achieved.

No

Aspect: water

EN8 Total water withdrawal by source. Not deemed material or relevant

Not deemed relevant or material

EN9 Water sources significantly affected by withdrawal of water.

Not deemed material or

Not deemed relevant or material

relevant

EN10 Percentage and total volume of water recycled and reused.

Not deemed material or relevant

Not deemed relevant or material

Aspect: biodiversity

EN11 Location and size of land owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas.

Not deemed material or relevant

Not deemed relevant or material

EN12 Description of significant impacts of activities, products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas.

Partial ‘Sustainable Ingredients – a campaign for forests, wildlife and decency’ article

EN13 Habitats protected or restored. Partial ‘Sustainable Ingredients – a campaign for forests, wildlife and decency’ article

EN14 Strategies, current actions, and future plans for managing impacts on biodiversity.

Partial ‘Sustainable Ingredients – a campaign for forests, wildlife and decency’ article

EN15 Number of IUCN Red List species and national conservation list species with habitats in areas affected by operations, by level of extinction risk.

Not deemed material or relevant

Not deemed relevant or material

Aspect: emissions, effluents, and waste

EN16 Total direct and indirect greenhouse gas emissions by weight

Partial Climate change article and data section

EN17 Other relevant indirect greenhouse gas emissions by weight.

No

EN18 Initiatives to reduce greenhouse gas emissions and reductions achieved.

Partial Climate change article and data section

EN19 Emissions of ozone-depleting substances by weight.

Not deemed material or relevant

No use of ozone depleting substances

EN20 NO, SO, and other significant air emissions by type and weight.

No

EN21 Total water discharge by quality and destination.

Not deemed material or relevant

Not deemed relevant or material as BSI does not manufacture products

EN22 Total weight of waste by type and disposal method.

No

EN23 Total number and volume of significant spills.

Not deemed material or relevant

Not deemed relevant

EN24 Weight of transported, imported, exported, or treated waste deemed hazardous under the terms of the Basel Convention Annex I, II, III, and VIII, and percentage of transported waste shipped internationally.

Not deemed material or relevant

Not deemed relevant

EN25 Identity, size, protected status, and biodiversity value of water bodies and related habitats significantly affected by the reporting organization’s discharges of water and runoff

Not deemed material or relevant

Not deemed relevant

Aspect: products and services

EN26 Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation.

Full ‘Sustainable Ingredients – a campaign for forests, wildlife and decency’, Packaging

EN27 Percentage of products sold and their packaging materials that are reclaimed by category.

No

Aspect: compliance

EN28 Monetary value of significant fines and total number of non-monetary sanctions for noncompliance with environmental laws and

Not deemed material or

There were no incidents or fines recorded for the

regulations. relevant reporting year

Aspect: transport

EN29 Significant environmental impacts of transporting products and other goods and materials used for the organization’s operations, and transporting members of the workforce.

Partial Climate Change

Aspect: overall

EN30 Total environmental protection expenditures and investments by type.

No

Labor Practices and Decent Work

Disclosure on Management Approach Provide a concise disclosure on the following Management Approach items with reference to the Labor Aspects listed below. The ILO Tripartite Declaration Concerning Multinational Enterprises and Social Policy (in particular the eight core conventions of the ILO) and the Organisation for Economic Co-operation and Development Guidelines for Multinational Enterprises, should be the primary reference points. • Employment; • Labor/Management Relations; • Occupational Health and Safety; • Training and Education; and • Diversity and Equal Opportunity.

Partial Ethical Trade, Our Employees

Goals and performance Partial Ethical Trade, Our Employees

Policy Partial Ethical Trade, Our Employees

Organizational responsibility Partial Ethical Trade, Our Employees

Training and awareness Partial Ethical Trade, Our Employees

Monitoring and follow up Partial Ethical Trade, Our Employees

Additional contextual information Partial Ethical Trade, Our Employees

Labor Practices and Decent Work Performance Indicators

Aspect: employment

LA1 Total workforce by employment type, employment contract, and region.

Partial Who we are

LA2 Total number and rate of employee turnover by age group, gender, and region.

Partial Our employees

LA3 Benefits provided to full-time employees that are not provided to temporary or part-time employees, by major operations.

No

Aspect: labor/management relations

LA4 Percentage of employees covered by collective bargaining agreements.

No

LA5 Minimum notice period(s) regarding operational changes, including whether it is specified in collective agreements.

No

Aspect: occupational health and safety

LA6 Percentage of total workforce represented in formal joint management–worker health and safety committees that help monitor and advise on occupational health and safety programs

No

LA7 Rates of injury, occupational diseases, lost days, and absenteeism, and number of work elated fatalities by region.

No

LA8 Education, training, counseling, prevention, and risk-control programs in place to assist workforce members, their families, or community members regarding serious diseases.

No

LA9 Health and safety topics covered in formal agreements with trade unions.

No

Aspect: training and education

LA10 Average hours of training per year per employee by employee category.

No

LA11 Programs for skills management and lifelong learning that support the continued employability of employees and assist them in managing career endings.

Partial Our employees

LA12 Percentage of employees receiving regular performance and career development reviews.

Partial Our employees

Aspect: diversity and equal opportunity

LA13 Composition of governance bodies and breakdown of employees per category according to gender, age group, minority group membership, and other indicators of diversity.

Partial

LA14 Ratio of basic salary of men to women by employee category.

No

Human Rights

Disclosure on Management Approach Provide a concise disclosure on the following Management Approach items with reference to the Human Rights Aspects listed below. The ILO Tripartite Declaration Concerning Multinational Enterprises and Social Policy (in particular the eight core conventions of the ILO which consist of Conventions 100, 111, 87, 98, 138, 182, 20 and 1059), and the Organisation for Economic Cooperation and Development Guidelines for Multinational Enterprises should be the primary reference points. • Investment and Procurement Practices; • Non-discrimination; • Freedom of Association and Collective Bargaining; • Abolition of Child Labor; • Prevention of Forced and Compulsory Labor; • Complaints and Grievance Practices; • Security Practices; and • Indigenous Rights.

Partial Ethical Trade and Our employees

Goals and performance Partial Ethical Trade, Our employees

Policy Partial Ethical Trade, Our employees

Organizational responsibility Partial Ethical Trade, Our employees

Training and awareness Partial Ethical Trade, Our employees

Monitoring and follow up Partial Ethical Trade, Our employees

Additional contextual information Partial Ethical Trade, Our employees

Human Rights Performance Indicators

Aspect: investment and procurement practices

HR1 Percentage and total number of significant investment agreements that include human rights clauses or that have undergone human rights screening.

No

HR2 Percentage of significant suppliers and contractors that have undergone screening on human rights and actions taken.

Full Ethical Trade

HR3 Total hours of employee training on policies and procedures concerning aspects of human rights that are relevant to operations, including the percentage of employees trained.

Partial Ethical Trade

Aspect: non discrimination

HR4 Total number of incidents of discrimination and actions taken.

Partial Ethical trade data on non-compliances

Aspect: freedom of association and collective bargaining

HR5 Operations identified in which the right to exercise freedom of association and collective bargaining may be at significant risk, and actions taken to support these rights

Partial Ethical trade data

Aspect: child labor

HR6 Operations identified as having significant risk for incidents of child labor, and measures taken to contribute to the elimination of child labor.

Partial Ethical Trade article and Data

Aspect: forced and compulsory labour

HR7 Operations identified as having significant risk for incidents of forced or compulsory labor, and

Partial Ethical Trade article and Data

measures to contribute to the elimination of forced or compulsory labor.

Aspect: security practices

HR8 Percentage of security personnel trained in the organisation’s policies or procedures concerning aspects of human rights that are relevant to operations.

Not deemed material or relevant

Aspect: indigenous rights

HR9 Total number of incidents of violations involving rights of indigenous people and actions taken.

No

Society

Disclosure on Management Approach Provide a concise disclosure on the following Management Approach items with reference to the Society Aspects: • Community; • Corruption; • Public Policy; • Anti-Competitive Behavior; and • Compliance

Partial Community Trade, Stop Violence in the Home, Spray to Change

Goals and performance Partial Community Trade, Stop Violence in the Home, Spray to Change

Policy Partial Community Trade, Stop Violence in the Home, Spray to Change

Organizational responsibility Partial Community Trade, Stop Violence in the Home, Spray to Change

Training and awareness Partial Community Trade, Stop Violence in the Home, Spray to Change

Monitoring and follow-up Partial Community Trade, Stop Violence in the Home, Spray to Change

Additional contextual information Partial Community Trade, Stop Violence in the Home, Spray to Change

Society Performance Indicators

Aspect: Community

SO1 Nature, scope, and effectiveness of any programs and practices that assess and manage the impacts of operations on communities, including entering, operating, and exiting.

Partial Community Trade section

Aspect: corruption

SO2 Percentage and total number of business units analyzed for risks related to corruption.

No

SO3 Percentage of employees trained in organisation’s anti-corruption policies and procedures.

No

SO4 Actions taken in response to incidents of corruption.

No

Aspect: public policy

SO5 Public policy positions and participation in public policy development and lobbying.

No

SO6 Total value of financial and in-kind contributions to political parties, politicians, and related institutions by country.

No

Aspect: anti -competitive behavior

SO7 Total number of legal actions for anticompetitive behavior, anti-trust, and monopoly practices and their outcomes.

No

Aspect: compliance

SO8 Monetary value of significant fines and total number of non-monetary sanctions for noncompliance with laws and regulations.

No

Product Responsibility

Disclosure on Management Approach Provide a concise disclosure on the following Management Approach items with reference to the Product Responsibility Aspects: • Customer Health and Safety; • Product and Service Labeling; • Marketing Communications; • Customer Privacy; and • Compliance.

Partial Chemicals, Our Stakeholders, Wise Woman

Goals and performance Partial Chemicals, Our Stakeholders, Wise Woman articles

Policy Partial Chemicals, Our Stakeholders, Wise Woman articles

Organizational responsibility Partial Chemicals, Our Stakeholders, Wise Woman articles

Training and awareness Partial Chemicals, Our Stakeholders, Wise Woman articles

Monitoring and follow up Partial Chemicals, Our Stakeholders, Wise Woman articles

Additional contextual information Partial Chemicals, Our Stakeholders, Wise Woman articles

Product Responsibility Performance Indicators

Aspect: customer health and safety

PR1 Life cycle stages in which health and safety impacts of products and services are assessed for improvement, and percentage of significant products and services categories subject to such procedures.

Partial Chemicals

PR2 Total number of incidents of non-compliance with regulations and voluntary codes concerning health and safety impacts of products and services during their life cycle, by type of outcomes.

Not deemed material or relevant

No non compliances were recorded last year

Aspect: product and service labeling

PR3 Type of product and service information required by procedures, and percentage of significant products and services subject to such information requirements

Full Sustainable Ingredients and Chemicals

PR4 Total number of incidents of non-compliance with regulations and voluntary codes concerning product and service information and labeling, by type of outcomes.

Not deemed material or relevant

No non compliances recorded

PR5 Practices related to customer satisfaction, including results of surveys measuring customer satisfaction.

Partial Our Stakeholders

Aspect: marketing communications

PR6 Programs for adherence to laws, standards, and voluntary codes related to marketing communications, including advertising, promotion, and sponsorship.

Partial Wise Woman

PR7 Total number of incidents of non-compliance with regulations and voluntary codes concerning marketing communications, including advertising, promotion, and sponsorship by type of outcomes.

Not deemed material or relevant

No breaches were recorded last year

Aspect: customer privacy

PR8 Total number of substantiated complaints regarding breaches of customer privacy and losses of customer data.

Not deemed material or relevant

No breaches were recorded last year

Aspect: compliance

PR9 Monetary value of significant fines for noncompliance with laws and regulations concerning the provision and use of products and services.

Not deemed material or relevant

No non-compliances were recorded last year

About this report

The Body Shop 2007 Values Report covers the period since the 2005 Values Report was published up to the end of 2006 (unless otherwise stated).

The 2005 Values Report primarily focused on the financial year up to 29 February 2005. Our financial year has been changed and now run in according with the calendar year, whereas we previously reported from March-February.

Assurance approach Our assurance programme is inspired by the three principles of the AA1000 standard, materiality, responsiveness and completeness. We strongly believe that these principles should be assessed by third parties to ensure continuous improvement.

In this report, we have split responsibility for this assessment in two, giving responsibility for assessing Materiality and Responsiveness to a panel of stakeholders and an assessment of completeness to URS Corp.

The Stakeholder Panel The stakeholder panel comprises of organisations and individuals who are either affected by, or may affect the way we develop and implement our Values. They represent groups directly affected by our actions, for example employees, TBSAH consultants and franchisees, as well as interest groups with a considerable involvement and knowledge around social, environmental and animal protection.

The stakeholders invited to join the panel have different levels of existing relationships with The Body Shop. Some have formalised links, while others were invited on the basis that they are specialists in areas where The Body Shop is committed to improving performance and have established themselves and/or the organisations they represent as critical but constructive. None of the stakeholders or their affiliate organisations has received any remuneration for their involvement.

URS Corp URS was engaged on a consultancy basis to verify claims made in the report and test data completeness and robustness. URS was given access to interviews with senior management as well as all management documents relating to the subjects covered in the report. URS presented and discussed their findings with the stakeholder panel.

Definitions and reporting boundaries Within this report “Products” relate to cosmetics and toiletries only and does not include accessories unless specifically stated.

Unless otherwise stated, the term “our people” include everyone working for The Body Shop brand, including employees, franchisees and their employees as well as The Body Shop At Home consultants

Unless otherwise stated, the data in the report covers data as at 31 December 2006. In some cases, extrapolations have been made to adjust figures to our new financial year.

The report cover policies and performance relating to The Body Shop International (BSI). Franchisees and The Body Shop At Home Consultants™ are obliged to adhere to BSI policies and sell only products and accessories approved by The Body Shop. All data on products relate to products approved by BSI, while data relating to business operations cover only BSI-owned operations. Contact details: If you are a customer and have question regarding the report please contact customer enquiry centre in your market or region

For media enquiries, please contact bsi.pressoffice@thebodyshop.com

For NGO enquiries, please contact values@thebodyshop.com

Targets and commitments overview

Targets from 2005 Report

Status/Progress New target

Against Animal Testing

Continue to be certified against the Humane Cosmetics Standard

Achieved Continue to be certified against the Humane Cosmetics Standard

Community Trade

No target set - Visit every CT supplier at least every two years

No target set - 65% of products will contain CT ingredients or be produced by CT suppliers by year-end 2008

Employees Employee turnover reduced by 15% in the UK and 10% in the US

Achieved

Ethical Trade

100% of first tier product suppliers ethically reviewed and approved

Achieved We will only trade with suppliers that commit to and make demonstrable improvement to meeting requirements in The Body Shop Code of Conduct for Suppliers. We will ensure that all first tier product suppliers are assessed on a regular basis: low risk suppliers every two years and medium and high risk suppliers every year.

100% of relevant members of sourcing team trained in ethical audits

Achieved

Climate Change

5% reduction of energy use in stores and offices by year-end 2007

Data not available 30% reduction in store carbon emissions by year-end 2008

90% of car fleet to be hybrid vehicles by year-end 2008

On track – currently 24%

90% of car fleet to be hybrid vehicles by year-end 2008

No target set Carbon Neutral retailer by 2010

All air travel offset Achieved 2325 tonnes for 2005/6 2063 tonnes for 2006 (March-Dec)

All air travel offset

Sustainable Ingredients

100% of wood products from FSC sources

On track 2004: 49% 2005: 65% 2006: 68%

100% of wood products from FSC sources

Palm oil – report annually on progress

On track: Reports on www.rspo.org

All soaps made from RSPO certified palm oil by year-end 2008

Chemicals Polycyclic musks phased out PCMs from product formulations by 2010

On track – 9 remaining formulations

Phase out polycyclic musks from product formulations by year-end 2010

Phthalates phased out from product formulations by 2006

Not achieved – 1 formation remaining

Phase out phthalates in product formulations by year-end 2007

Packaging No targets set - 65% of our packaging assortment will contain recycled content by year-end 2008

No targets set - We will double the recycled content of all of our PET bottles by year-end 2008 (currently 30%)

No targets set - We will develop and communicate a company-wide strategy on waste and packaging by year-end 2008

Glossary and definitions

Animal derived ingredients Ingredients that come from animal sources such as gelatine (a gelling agent derived from animal ligaments, skins, tendons, bones etc).

Biodiversity The diversity, or variety, of plants, animals and other living things in a particular area or region. This can mean habitat diversity, species diversity and genetic diversity.

Biofuels Any fuel that derives from biomass – recently living organisms or their metabolic byproducts, such as manure from cows. It is a renewable energy, unlike other natural resources such as petroleum, coal and nuclear fuels. Biofuels include ethanol, biodiesel, and methanol.

Blanket of gases The atmosphere is a blanket of gases about 600 miles (1,000 km) deep around the Earth. It can be divided into five layers: troposphere, stratosphere, mesosphere, thermosphere, and exosphere.

British Union for the Abolition of Vivisection (BUAV) One of the world’s leading organisations campaigning globally to end animal experiments. Their vision is to create a world in which no one wants or believes we need to experiment on animals.

Coalition for Consumer Information on Cosmetics (CCIC) An organisation which promotes the ‘Humane Cosmetics Standard’, a single comprehensive standard for ‘cruelty free’ cosmetics, and an internationally recognized "leaping bunny" logo.

Community Trade programme A targeted purchasing programme of natural ingredients and accessories from socially or economically marginalised communities around the world. CT gives producers in marginalized societies access to a market that would otherwise be out of reach, and it does this in a fair way.

Cut-off date The Body Shop operates a fixed cut-off date of 31 December 1990, which means that we will not buy any ingredient that has been tested on animals for cosmetic purposes after this date. It is impossible to change the fact that virtually every ingredient, even water, has been tested on animals in the past. Operating a fixed cut-off date is widely accepted as the gold standard in against animal testing policy.

Degradable Capable of being chemically reduced or broken down, as apposed to ‘biodegradable’ which means capable of decomposing under natural conditions.

Ecosystems A complex set of relationships amongst the living resources,

habitats and residents of an area. It can include plants, trees, animals, fish, birds, micro- organisms, water, soil and people.

Ethical Trade Programme Our way of ensuring that workers in our supply chain do not have their human rights violated. We have a Code of Conduct which stipulates the minimum standards that we require, and we work to ensure that suppliers abide by this code. The Ethical Trade programme cover first tier product suppliers, except Community Trade suppliers, who are covered by our Community Trade standards.

Ethical Trading Initiative (ETI)

An alliance of companies, non-governmental organisations (NGOs) and trade union organisations, promoting and improving the implementation of corporate codes of practice which cover supply

European Coalition to end Animal Experiments Europe's leading alliance peacefully campaigning on behalf of laboratory animals. Formed in 1990 by animal organisations across Europe to successfully campaign to ban cosmetics testing on animals, the European Coalition draws together organisations with a range of legislative, scientific and political expertise.

Hybrid cars A hybrid vehicle or gas-electric hybrid powered vehicle uses a mixture of technologies such as internal combustion engines (ICEs), electric motors, gasoline, and batteries. Today's hybrid cars are driven by electric motors powered by both batteries and an ICE.

In vitro alternatives Literally means ‘in glass’. In this context we mean laboratory alternatives to animal testing.

Living wage The term "living wage" is used by advocates to refer to the minimum hourly wage necessary for a person to achieve some specific standard of living. There is some discussion about how a living wage should be determined because it varies greatly from location to location.

NGOs Non-governmental Organisation, a not-for-profit agency not affiliated with any government or private sector entity, devoted to managing resources and implementing projects with the goal of addressing social problems.

Non-compliances Suppliers who do meet the standards in our ‘Code of Conduct’ are deemed to be ‘non-compliant’. These non-compliances do not necessarily mean that business is terminated with the supplier – rather we work with them to remedy the problems.

Offsetting The process of reducing the net carbon emissions of an individual or organisation through arrangements with a carbon-offset provider. A carbon offset service achieves net reduction of greenhouse gas emissions through a wide variety of offsets – tree planting is currently the most common. Renewable energy and energy conservation offsets have also become increasingly popular.

Parabens

A group of chemicals widely used as preservatives in the cosmetic and pharmaceutical industries. They can be found in shampoos, shaving gels, cleansing gels, deodorants, personal lubricants, and topical pharmaceuticals.

PET Bottles Polyethylene terephthalate is a thermoplastic polymer resin of the polyester family that is produced by the chemical industry and is used in synthetic fibres, beverage, food and other liquid containers.

Phthalates A family of chemicals, produced from phthalic anhydride and alcohols. There are two groups of phthalates – higher and lower. Lower phthalates are commonly used in personal care products, especially in nail polish, hair spray and perfumes. In perfumes, it is used as a carrier or a solvent for artificial musks. The most common types of phthalates found in personal care products are Diethyl Phthalate (DEP) and Dibutyl (DBP). Higher phthalates, for example DEHP are used as softeners in plastics, such as PVC. Under EU legislation these are been banned from use in personal care products.

Polycyclic musks A type of chemical fragrance used to replace natural animal-derived musk fragrances.

Recyclate Post consumer recycled material.

Renewable energy Energy obtained from sources that are essentially inexhaustible, unlike, for example, fossil fuels, of which there is a finite supply. Renewable sources of energy include wood, waste, geothermal, wind, and solar thermal energy.

Roundtable on Sustainable Palm Oil A global multi-stakeholder initiative “to promote the growth and use of sustainable palm oil through co-operation within the supply chain and open dialogue between its stakeholders”. The not-for-profit association has members from the oil palm growers, palm oil processors and traders, consumer goods manufacturers, retailers, banks and investors, environmental/nature conservation NGOs and social/development NGOs.

Sustainable business levels Levels of business set with Community Trade suppliers, so that we neither overstretch them nor over-promise what trade they will have with The Body Shop. Using forecast data we closely monitor the effect that sales trends, new product development and product discontinuation/cannibalisation will have on the sustainable business level. We maintain a “league table” of those ingredients whose trend is in decline, and those where we predict future capacity issues. This table is used by our product developers, who play a vital role in the sustainability of the Community Trade programme by working with us to look for additional uses for ingredients in decline. Vivisection The dissection or, more generally, any cutting or surgery upon a living animal, typically for the purpose of scientific investigation.

WWF Forest and Trade Network The WWF-UK FTN was founded as the WWF 1995 Group, with 20 member companies, in 1991. Its members' vision was to ensure that their timber and paper supplies came from well-managed forests, and did not contribute to forest destruction and illegal logging practices.