The U.S. Securities and Exchange Commission announced on Wednesday that it has proposed rescinding Rule 14a-8, the federal framework providing shareholders with a route to have proposals included in a company’s proxy statement for a shareholder vote, commonly used for proposals on sustainability, climate change, executive pay, and other issues.

While the commission argued that it was proposing repealing the rule on the basis that it exceeds its authority and intrudes into state law, SEC Chair Paul Atkins had previously indicated that eliminating the rule would form part of his plans to “de-politicize shareholder meetings,” and specifically called out ESG-related proposals that “ “consume a significant amount of management’s time and impose costs on the company.”

Similarly, in a statement released after announcing the plans to repeal the rule, SEC Commissioner Mark T. Uyeda said that “Rule 14a-8 has been co-opted to advance the agendas of various political interests—acting without any fiduciary duty to a corporation or its shareholders—at the expense of the millions of investors that directly and indirectly own public companies.”

Initially adopted by the SEC in 1942, Rule 14a-8 provides a mechanism for shareholders to include a proposal in a company’s proxy statement. The rule establishes the process under which eligible shareholders can submit proposals for inclusion in a public company’s proxy materials for a vote, and generally requires a company to include proposals by eligible shareholders, unless they fall under specified grounds for exclusion, and to notify the SEC if it seeks to exclude the proposal, with an explanation for the exclusion.

In a statement explaining the SEC proposal, Atkins said that the move reflects “a recognition that the Commission must act within its authority,” arguing that the SEC does not have authority from Congress to determine matters that are appropriate for shareholder votes, but that the authority should instead be given to the individual states in which companies are based.

Atkins said:

“The proposals reflect two of my highest regulatory priorities. First, ensuring that the Commission does not improperly intrude into state corporate law when applying the federal securities laws. Second, updating the Commission’s rules to reflect developments in market practice and technology, and other innovations, since the rules’ adoption or last amendment.”

Atkins added that the “the proposed rescission would not eliminate the concept of shareholder proposals and is not an attempt by the Commission to silence shareholders.”

Shareholder rights and corporate governance-focused groups criticized the SEC proposal, arguing that the rescission would eliminate a key tool for shareholder to communicate with companies, and would create a complex system of state-level frameworks for shareholder and companies to navigate.

Glenn Davis, Executive Director of the Council of Institutional Investors called the proposal a “solution in search of a problem,” and warned that it “will launch a new race to the bottom in state corporate law and result in a dramatic reduction in shareholders who qualify as proponents, notwithstanding smaller investors’ history of putting forward many of the most highly supported proposals.”

Davis said:

“Let this moment settle in: The SEC, created for the purpose of protecting investors in the aftermath of the Crash of 1929, today proposed to rescind a World War II-era rule protecting shareholders’ ability to suggest ideas to improve the companies they own.”