Environmental, social, and governance considerations in business management and investment strategies have become a political hot potato in the United States. ESG has permeated business schools , international organizations , and the investment community . But people have begun raising concerns about the financial performance of ESG and its political implications, with some state treasurers even withdrawing money from investment firms that use ESG criteria.

Business schools teach ESG as a framework for identifying and mitigating risks in order to promote business profitability. When it comes to the environment, businesses are supposed to consider how environmental issues (declining water supply, soil depletion, severe weather, etc.), and political restrictions may put their business assets and activities at risk.

But if you look at the new climate disclosure rules just passed by the California legislature and those being considered by the Securities and Exchange Commission, you find something else: a focus on whether companies are contributing to general environmental trends. For example, the new rules require companies to report their energy usage, emissions, and the emissions of their customers and suppliers.

Reporting those things has little to do with a company’s bottom line. It turns out ESG has become a giant bait-and-switch scheme. The bait is risk mitigation to improve profitability. The switch is assessing companies based on how well they advance a specific climate agenda.

Or, consider the social part of ESG. In business schools, you will hear that treating one’s employees well — listening to their ideas, keeping them engaged in their work, and so on — will improve their productivity. But if you look at how companies are scored in this regard, you find that there are very specific requirements that barely promote productivity. If, as a business owner or executive, you happen to disagree, well, you are wrong and can be penalized in the social score accordingly.

When it comes to governance, the same bait and switch occurs. Advocates of ESG in business and investment circles argue that having appropriate compensation schemes, accountability, information flows, and nimbleness to changing environments contribute to companies’ profitability over time. What we get in the scoring of governance, though, are specific requirements for diversity, equity, and inclusion, quotas for minorities on boards or in hiring, sometimes skipping even the nod to profitability.

ESG has undeniably become a tool to advance “net zero” and “low-carbon economy” goals. It has become a means for groups with certain social agendas to reward or punish firms for how well they comply with their agenda, regardless of the bottom line. And these groups have also developed enforcement mechanisms for their progressive agendas. They criticize companies that “pretend” to comply with ESG goals, saying they are “ greenwashing ,” as if this were somehow similar to money laundering.

They have also created the pernicious idea of a (social) “license to operate,” suggesting that companies need approval from the “community” to do business. But a business should not be subjected to a popularity contest among amorphous stakeholder special interest groups. Rather, it must be subject to the market and its customers.

The bait-and-switch tactics employed make ESG downright pernicious. Business owners, customers, and investors are upset because they rightly see that ESG has become less about risk mitigation and instead is being used to divert resources to environmental, climate, and social goals that have nothing to do with shareholder or investor returns.

Businesses must aim to be profitable; that is the signal that they are responding to the needs of the market, providing valuable goods and services, and satisfying their customers. An economy built on enterprises that aren’t successful in the free market can never benefit the actual community.

The sooner we recognize this, the sooner we can develop other investment frameworks. Business school professors and professional investors are not stupid. It’s time they realize they’ve been played.

Paul Mueller is a senior research fellow at the American Institute for Economic Research.