Norway’s Wealth Fund Unleashes AI to Root Out Climate Risk

Nicolai Tangen Photographer: Naina Helén Jåma/Bloomberg Bloomberg

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(Bloomberg) — Norway’s sovereign wealth fund, the world’s biggest, is giving artificial intelligence a key role in protecting its $2 trillion portfolio from climate risk.

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Norges Bank Investment Management will use AI for a range of tasks including to “extract signals from company dialogues,” according to its 2030 Climate Action Plan. The fund also intends to use AI to improve decision making, and “to strengthen investment processes across teams,” ultimately helping it identify corporate winners and losers, it said. 

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“AI has become a real game-changer for how we work on climate,” the wealth fund’s chief executive, Nicolai Tangen, told Bloomberg. It’s helping turn “mountains of information into clear insights that we can act on immediately.”

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Tangen has made no secret of his enthusiasm for AI. In an interview in May, the 59-year-old former hedge fund manager said he’s been running around “like a maniac” trying to get staff to use the technology, even going so far as to say that employees shunning AI “will never be promoted.”

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The wealth fund, which essentially functions as an index investor, is emerging as an outspoken proponent of AI as some other money managers caution against relying too much on the technology. This month, billionaire investor Ken Griffin said generative artificial intelligence isn’t helping hedge funds produce market-beating returns.

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At Oslo-based NBIM, AI is already proving useful in determining whether the fund’s climate policy is working, Tangen said. That includes evaluating the effectiveness of its engagement with portfolio companies, crunching data to guide recommendations on proxy votes and generating quantitative climate scores, he said.

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“Portfolio managers get this information directly in their trading systems,” Tangen said. AI can help identify “transition winners,” which he describes as companies that are “decarbonizing faster and more effectively than the market expects.”

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The wealth fund’s decision to rely more on AI coincides with evidence that the physical fallout of climate change is picking up, adding urgency to the need for investors to act fast. Erratic government policies have also increased the likelihood of a disorderly future, and investors now face the risk of “meaningful losses at the portfolio level,” the wealth fund said in its report.

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NBIM intends to increase investments in renewable energy infrastructure, it said in Wednesday’s climate report, singling out renewable electricity generation and storage, electricity grids and renewable energy infrastructure funds in its climate plan. 

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The fund will also examine how physical climate risk is likely to impact its government and government-related fixed income portfolios as well as its real estate investments, the report shows. And NBIM will increase focus on stopping deforestation and on monitoring corporate lobbying on climate change, it said.