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

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Artificial intelligence, according to Nikolai Tangen, head of Norway’s $1.4tn oil giant, “is like being in a rocket going into space . . . it’s exciting, but it’s also scary.”

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

It may all sound like a gimmick, but the Norwegian fund is one of the most advanced of any of the world’s big traditional investors to publicly air its views on AI. It’s not just about the balance between the risks and opportunities in AI, but what the companies they invest in think they should do. As the importance of AI grows, the role of oil funds will be appropriate.

Last month, the fund released its first thoughts on how companies should use AI responsibly. That’s partly because AI has made an extraordinary run for only a few companies, and many others have given the issue special attention.

Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla — to name just seven of the more than 9,000 companies the fund owns — account for 12 percent of its portfolio. In the first half of this year, those seven brought in a third of the fund’s return. That concentration makes Tangen’s favorites nervous, although there’s relatively little he can do about it because the fund is only an index investor.

Instead, the fund is trying to use it to improve the use of AI across all of its investments by focusing on three areas — it owns an average of 1.5 percent of every listed company worldwide.

The first is to ensure that boards are accountable for the responsible development and use of AI. Here, the tangent is reprehensible. “Boards are not exactly over the top,” he says. Given how many companies have long struggled to acquire sufficient expertise on cyber security, AI is likely to make the question even more difficult. Oil funds can vote against those who don’t, Tangen adds.

Another relates to how transparent companies are about how AI is used and how those systems are designed and tested. Along with the tech industry, the fund is focusing on sectors using AI with consumers such as healthcare, financials 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, companies are nowhere near good enough on any of the three points, according to Karyn Smith Iheanacho, the fund’s chief governance and compliance officer, who says she worries about AI’s potentially far-reaching effects on democracy and how markets work.

Underpinning all this is the desire for state regulation of the AI ​​sector. Tech companies may be talking about state regulation, but Tangen argues that they “won’t self-regulate important revenue streams,” making it important for governments to step in.

The Fund’s demands can be relatively broad and, given the demands of global regulation, even utopian. But as AI penetrates more and more corners of the economy, it’s important that investors are heard. By articulating its views, the oil fund can more easily sanction errant companies at annual meetings — as it already does with many of its largest holdings on everything from pay to splitting the roles of CEO and chairman. It will be interesting to see who they vote against first.

But the fund is not only interested in AI as an owner. Tangen hopes to significantly improve its business and internal productivity using the technology. By using AI to help managers spend less time on “boring stuff,” he aims to increase internal productivity by 10 percent (a number pulled out of thin air, he happily admits).

AI is also helping trading, reducing the cost and frequency of buying and selling. Funds are using it to help decide when to trade due to portfolio rebalancing requirements and to eliminate the practice of buying and then selling stocks due to portfolio rebalancing requirements.

Tangen is clearly excited: “If you don’t think there are opportunities in AI, I think you’re a total idiot.” But Norway’s oil fund and other investors have to worry about what could go wrong to avoid an AI crash-landing.


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