From the August 2007 issue of Entrepreneur

Joshua Onysko is the definition of a green entrepreneur. His organic body-care company, Pangea Organics, makes all-natural soaps and lotions with ingredients such as almond oil, beeswax and sweet basil. The company's 10,000-square-foot Boulder, Colorado, facility is 100 percent wind-powered, and an onsite 2,500-square-foot organic garden provides lunch for Pangea's 22 employees. "It feeds our entire staff seven months out of the year," says Onysko, 30. Pangea projects sales of $2.7 million in 2007.

The mainstreaming of organic products, however, has brought big companies and retailers into Pangea's niche, where federal standards require that raw materials be certified as organic, but leave how those materials are used wide open to interpretation. "Body care has no governance at all," says Onysko. "If you can spell organic, you can put it on your label."

Now suspicious consumers are questioning the integrity of all organic products, including Pangea's. Onysko visited a blog where a poster was upset that Pangea's lotions lacked a specific seal to show that no animal testing was performed. He posted a reply to reassure readers that the company eschews animal testing. "People think that Pangea is an enormous corporation," he says. "We spend a lot of time explaining to people via the internet and the media who we are and why we do what we do."

Going green is the hottest business trend around, but the entry of big-league companies into an industry formerly dominated by small businesses has led to confusion--and more questions--about what is and isn't organic. Mark Kastel, co-founder of The Cornucopia Institute, a watchdog group for the organic industry, thinks the majority of organic companies act honorably. He worries, however, about the unscrupulous few navigating what remains largely an honor system. And the USDA has yet to aggressively go after bad actors: It has collected civil penalties from just two companies since its certification program took effect in 2002, one of them a Canadian company, for violating organic labeling standards. The USDA has "consistently shown no desire to aggressively enforce the big-gest issues that face the organic community in terms of improprieties," Kastel says.

Some industries are tightening their own rules. The Global Organic Textile Standard, or GOTS, is a new set of global guidelines that govern organic fiber products from farming to finished product--a stricter mandate than USDA regulations that cover only farming. "In 2008, you're going to start to see GOTS-certified products hitting the market, and that's going to set the standard," says Marci Zaroff, 39, founder of Under the Canopy, a 17-employee organic clothier based in Boca Raton, Florida, that's working to become GOTS-certified.

Look for the next phase of the green movement to go even further: Is an organic T-shirt truly green if it's been transported thousands of miles? Is your product less organic if your plastic container is nonbiodegradable? Smart companies will address these questions sooner rather than later. "At some point in the not-too-distant future, the companies that [aren't ecologically responsible] are going to be economically penalized," Kastel says. The "buy local" movement, which advocates buying food from local farmers and manufacturers, is further evidence of consumers' growing concern for the environment. Whole Foods, meanwhile, recently announced a buy-local initiative of its own.

Still, entrepreneurs in the organic space face the very real problem of supply and demand. Sourcing organic raw materials is a constant issue for Brian Chossek, president of 4-year-old Seven Oaks Ranch, which produces organic spreads and dressings under the label Garlic Gold. The company grows garlic and other produce on its 12.5-acre Ojai, California, organic ranch, but it must import some of its organic garlic from Argentina and China. "Supply is a major issue, and to me, supply is a significant part of why you're starting to hear the questions," says Chossek, 31, adding that he would like to buy more from local suppliers, but they just aren't there.

Staying true to their colors--namely, green--means balancing the need for imports with the environmental impact they create. Seven Oaks Ranch runs on biofuels and solar power, and Chossek asks employees to use the company Prius for errands. Pangea--which imports 40 percent of its raw materials via sea freight from around the world--offers public transportation passes to its employees, plants trees on three continents and is gearing up for annual audits of its environmental impact. "Pangea isn't big enough to change the way we ship products," Onysko says. "But we're big enough to change the way we make products." For now, he has greater faith in Whole Foods to maintain high organic standards than he does in the USDA.

Kastel sees the debate shaking out in one of two ways. Either the unethical companies will win and force principled green companies to find new branding messages, or consumers will flex their muscles against companies they no longer trust. Boycotts against large milk producers such as Aurora Organic Dairy and Dean Foods could be only the beginning of a major consumer push-back. "The jury's out, but I'm betting on the success of organics," Kastel says. "There are millions of consumers who care passionately about these issues."