Use of AI for business governance must improve at the board level
According to Carine Smith Ihenacho, chief governance and compliance officer of Norway’s $1.7 trillion sovereign wealth fund, boards need to be proficient with the use of AI and take control of its application in businesses to mitigate risks.
The Norges Bank Investment Fund, which holds considerable shares in almost 9,000 companies worldwide — accounting for 1.5% of all listed stocks — has become a trailblazer in environmental, social, and corporate governance issues. About a year ago, the fund also provided its invested companies with recommendations on integrating responsible AI to improve economic outcomes.
Several companies still have a lot of ground to cover. Specifically, when stating that “Overall, a lot of competence building needs to be done at the board level,” Smith Ihenacho clarified that this does not mean every board should have an AI specialist. Instead, boards need to collectively understand how AI matters in their business and have policies in place.
“They should know: ‘What’s our policy on AI? Are we high risk or low risk? Where does AI meet customers? Are we transparent around it?’ It’s a big-picture question they should be able to answer,” Smith Ihenacho added, highlighting the breadth of understanding required at the board level.
The fund has shared its perspective on AI with the boards of its 60 largest portfolio companies, as reported in its 2023 responsible investment report. It is particularly focused on AI use in the healthcare sector due to its substantial impact on consumers, and is closely monitoring Big Tech companies that develop AI-based products.
In its engagement with tech firms, the fund emphasises the importance of robust governance structures to manage AI-related risks. “We focus more on the governance structure,” Smith Ihenacho explained. “Is the board involved? Do you have a proper policy on AI?”
The fund’s emphasis on AI governance is particularly relevant, given that nine of the ten largest positions in its equity holdings are tech companies. Leading among them are names such as Microsoft, Apple, Amazon, and Meta Platforms. Investments in these companies contributed to a 12.5% growth in the fund’s stock portfolio in the first half of 2024. The overall exposure to the tech sector increased from 21% to 26% over the past year, now comprising a quarter of the stock portfolio. This underscores the significant role that technology and AI play in the world today.
Though the fund favours AI innovation for its potential to boost efficiency and productivity, Smith Ihenacho has emphasised the importance of responsible use. She is quoted as saying, “It is fantastic what AI may be able to do to support innovation, efficiency, and productivity… we support that.” However, she also stressed the need to be responsible in how we manage the risks.
The fund’s adoption of AI governance aligns with rising global concerns about the ethical implications and potential dangers of these technologies. AI is increasingly utilised across various sectors, from finance to healthcare, and the need for governance frameworks has never been greater. The Norwegian sovereign wealth fund maintains a standard that requires companies to develop comprehensive AI policies at the board level, fostering the adoption of responsible AI practices across its large portfolio.
This initiative by one of the world’s largest investors could have far-reaching implications for corporate governance practices globally. As companies seek to harness the power of AI while navigating its complexities, the guidance provided by influential investors like Norges Bank Investment Fund may serve as a blueprint for responsible AI implementation and governance in the corporate world.
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