The Emerging Imperative: Responsible AI Governance
Responsible AI governance has been thrust in the spotlight as investments reach unprecedented new heights, especially in the tech sector. Last month, a seismic shift occurred when Norway's $1.4 trillion wealth fund, the world’s largest single stock market investor, issued a clarion call to the companies within its portfolio. Their message was clear: Embrace AI as a catalyst for profit, but do so responsibly. The public announcement marks a pivotal moment as governments, firms and individuals try to get a handle on the emerging opportunities and risks posed by AI.
Nicolai Tangen, the CEO of Norges Bank Investment Management tasked with managing the Norwegian Sovereign Wealth Fund, told Reuters that AI is poised to be a monumental force in the business landscape, enhancing productivity and efficiency. Like computers, and the internet, AI he argued, is set to become indispensable in daily life. In the interview, Tangen stated, "We naturally expect companies to harness AI for the maximum benefit of their operations. AI represents a vast opportunity for both businesses and society, but it is imperative that it is wielded judiciously."
The statement was made the day before the fund announced profits of 1,501 billion crowns ($143 billion) for the first half of the year, partly due to the growth of U.S tech companies and their development of artificial intelligence. However, Tangen's message was uncompromising: Companies abstaining from AI engagement would, in his words, "disqualify themselves as being complete morons." With investments spanning 9,200 firms worldwide, the Norwegian Sovereign Wealth Fund wields significant influence and sets expectations across a spectrum of issues, from children's rights to climate change. The pronouncement, unveiled on August 25th, places a substantial emphasis on consumers' interests, with AI at its core.
When engaging with firms regarding responsible AI, the fund will pay special attention to sectors such as healthcare, finance, and large tech, as these industries wield AI in ways that significantly impact consumers. The fund's expectations are unequivocal: Companies must provide a comprehensive explanation of their AI systems' development, design, training, and testing processes. Equally vital is the establishment of robust human oversight and control mechanisms.
Carine Smith Ihenacho, the fund's chief governance and compliance officer, underscored the importance of accountability. She stressed that individuals affected by AI-generated outcomes should have the ability to inquire, asking questions like, "How does your algorithm work? Why was my loan denied?"
The Norwegian Sovereign Wealth Fund’s statement about responsible AI is the first of its kind after a high-profile summer meeting between the leading AI companies and the White House who made voluntary commitments toward the safe, secure, and transparent development of AI technology.
While commending recent self-regulation efforts in the US, Smith Ihenacho noted the absence of comprehensive regulations around AI. She highlighted the necessity for more robust regulatory frameworks and suggested investors and companies could play a pivotal role in bridging these regulatory gaps by taking proactive measures to manage AI-related risks and establishing contingency plans for unforeseen challenges. The fund singled out tech giants like Microsoft, Amazon, Alphabet, and Nvidia as holding a special responsibility in shaping the future of AI.
ESG regulatory guidelines for AI are notably laxer in the US than in the European Union and in Asia. If you’re an ESG-forward company, stakeholders will want to know how you’re using AI, and be kept abreast of developments. If a firm falls short, expect investors to be vocal like Norwegian Sovereign Wealth Fund who divested from 74 firms last year after they failed to meet its ethical standards.
We’re keeping a watchful eye on the evolving AI landscape. If you’re mulling over your governance strategy, start a conversation with Graham Farrell (Graham.Farrell@Harbor-Access.com) in Canada or Jonathan Paterson (Jonathan.Paterson@Harbor-Access.com) in US.