Urgent Call for Enhanced AI Integration in Board-Level Business Governance

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Carine Smith Ihenacho, who is the chief governance and compliance officer at Norway’s $1.7 trillion sovereign wealth fund, emphasizes that boards need to be proficient in utilizing AI to steer its application in companies to avoid potential risks.

The Norges Bank Investment Fund, possessing significant stakes in nearly 9,000 companies globally which represents about 1.5% of all listed stocks, pioneers in addressing environmental, social, and corporate governance issues. About a year prior, the fund advised its invested companies on adopting responsible AI practices to enhance financial outcomes.

There remains considerable work for many companies, especially in enhancing understanding and implementation of AI at the board level. Smith Ihenacho highlighted that boards do not necessarily need an AI specialist, but rather, a collective comprehension of AI’s relevance in their business along with appropriate governance policies.

“Board members should be able to clearly articulate their company’s stance on artificial intelligence, specifying whether they view their approach as high risk or low risk, how AI interfaces with customers, and the level of transparency they maintain,” said Smith Ihenacho, stressing the need for comprehensive understanding at the board level.

According to its 2023 responsible investment report, the fund has communicated its views on AI to the boards of its 60 largest portfolio companies. The fund pays particular attention to the application of AI in healthcare, recognizing its profound implications for consumers. It also scrutinizes major technology firms that are innovating with AI-driven products.

When interacting with technology companies, the fund highlights the necessity of solid governance frameworks to handle risks associated with AI. “Our primary focus is on the governance structure,” noted Smith Ihenacho. “Is the board involved? Is there a well-defined AI policy in place?”

This focus on AI governance is notably pertinent as nine of the top ten equity investments of the fund are in technology firms, including major players such as Microsoft, Apple, Amazon, and Meta Platforms. Investments in these companies led to a 12.5% increase in the fund’s stock portfolio in the first half of 2024. The percentage of the fund’s total investments in the tech sector escalated from 21% to 26% over the previous year, highlighting the critical importance of technology and AI in the contemporary landscape.

Though the fund supports AI innovation for enhancing efficiency and productivity, Smith Ihenacho has highlighted the necessity of its responsible use. She remarked, “It is fantastic what AI might achieve in terms of supporting innovation, efficiency, and productivity… we are in favor of that.” Nonetheless, she underscored the criticality of managing associated risks responsibly.

The adoption of AI governance by the fund mirrors the growing global concerns about the ethical implications and potential risks of these technologies. AI is being increasingly employed across multiple sectors, including finance and healthcare, underscoring the urgent need for governance frameworks. The Norwegian sovereign wealth fund sets a precedent by requiring companies to develop elaborate AI policies at the board level, thereby promoting the adoption of responsible AI practices across its vast portfolio.

This initiative from one of the globe’s largest investors might significantly influence corporate governance practices worldwide. As firms strive to leverage AI’s potentials while managing its complexities, the guidelines set by influential entities like Norges Bank Investment Fund could act as models for responsible AI implementation and governance within the business sector.

See also: X agrees to halt use of certain EU data for AI chatbot training

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