Norway’s oil fund is sending a message to companies about AI

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Artificial intelligence, according to Nicolai Tangen, head of Norway’s $1.4 trillion oil giant, is like “being in a rocket on the way to space. . . It was extremely exciting but also very scary.”

Stretching the metaphor to its limits, the head of the world’s largest sovereign wealth fund added: “We hope we are in Apollo 11, not Challenger. The mission statement is safe return.”

All this may seem like a quick story, but the Norwegian fund is one of the world’s largest traditional investors most advanced in publicly expressing its thoughts on AI. This is not just about balancing the risks and opportunities from AI, but also about what they think the companies they invest in should do. As the importance of AI grows, the oil fund’s perspective will be worth following.

Last month, the foundation offered its first thoughts on how companies should use AI responsibly. This issue is of particular importance to it and many other investors, given the unusual performance of just a few companies, partly due to AI.

Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – to name just seven of the more than 9,000 companies the fund owns – make up 12% of its portfolio. In the first half of this year, those seven brought in a third of the fund’s profits. That concentration worries people like Tangen, even if he can do relatively little because the fund is just an index investor.

Instead, the fund is trying to use its power – on average it owns about 1.5% of every listed company worldwide – to improve the use of AI in all its investments by focusing on three areas.

The first is to ensure councils are held accountable for developing and using AI responsibly. Here, Tangen is damned. “Councils are absolutely not at the forefront of this issue,” he said. Given how many companies have long struggled to acquire enough cybersecurity expertise, AI will likely be an even more difficult ask. The oil fund could vote against those who do nothing, Tangen added.

The second concerns how transparent companies are about how they use AI and how they explain how those systems are designed and tested. As well as the tech industry itself, the fund is paying particular attention to sectors that use AI with consumers such as healthcare, finance and consumer goods.

The final element is risk management. The fund argues that companies should be proactive and ensure external verification and auditing of their AI systems and risk management processes. So far, the companies haven’t been good enough on any of the three counts, according to Carine Smith Ihenacho, the fund’s director of governance and compliance. She also worries about AI’s potentially far-reaching impacts on democracy and the way markets work.

Underpinning it all is the desire for state management of the AI ​​field. Tech companies may be talking about state regulation but Tangen argues that they “will not self-regulate key revenue sources,” making it important for the government to intervene.

The fund’s requirements can be relatively generous and, in the face of global regulatory demands, even utopian. But it is important that investor views are heard as AI penetrates many corners of the economy. By setting out its thinking clearly, the oil fund can more easily punish errant companies at annual meetings – just as it does with many of its major holdings. on everything from pay to the division of CEO and chairman roles. It will be interesting to see who votes against whom first.

But the fund is not only interested in AI as an owner. Tangen hopes to use this technology to significantly improve its trading operations and internal productivity. By using AI to help managers spend less time on “boring stuff,” he set a goal of increasing internal productivity by 10% (a number pulled out of nowhere, he He frankly admitted).

AI is also powering transactions, reducing costs and frequency of purchases. The fund is using it to help decide when to trade and eliminate the need to quickly buy and then sell stocks due to portfolio rebalancing requirements.

Tangen is clearly optimistic: “If you don’t think there are opportunities with AI, then in my mind you are a complete fool.” But avoiding the AI ​​crash landing could leave Norway’s oil fund and other investors with plenty to worry about that could go wrong.