The statement from the think-tank comes as Unilever faces criticism from Fundsmith founder Terry Smith for being "obsessed" with its sustainability credentials.
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The UK's post-pandemic recovery could be scuppered by 'woke capitalism' says a report.
The Adam Smith institute says efforts being made by companies to wade into social issues is taking away from the focus on making a profit, something that will be crucial as the UK looks to rebuild its economy.
The statement from the think-tank comes as Unilever faces criticism from Fundsmith founder Terry Smith for being "obsessed" with its sustainability credentials.
Mr Smith says the group has "lost the plot" for trying to define "the purpose" of some of their brands such as Hellman's mayonnaise.
The institute said: "Companies should stick to traditional profit-driven shareholder capitalism rather than pursuing 'woke capitalist' social objectives that often require political action and leave firms facing accusations of hypocrisy".
The group added that woke capitalism is blurring the lines between the business and government, when the boundaries need to be clearer than ever.
It warns that the government may fall into a trend of "disaster corporatism", where they intervene too frequently on business matters.
Rother Valley Conservative MP Alexander Stafford said: "Many on the left are exploiting the pandemic to make the case for a bigger state and restrictions on the private sector.
'However, this paper argues powerfully that for a successful recovery, we must allow our liberal free market system to flourish by business and government playing their proper roles".
