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Marking World Environment Day with a commitment to sustainable finance, AU Small Finance Bank (AU SFB), India’s largest small finance bank, has partnered with the International Finance Corporation (IFC) to undertake a comprehensive climate risk advisory program. Through this initiative, AU SFB will embed climate risk considerations into its governance frameworks, strategic planning, risk management processes, and ESG disclosures – aligning with global best practices and evolving regulatory expectations.
IFC will serve as AU SFB’s lead ESG and climate risk advisor, supporting AU SFB in addressing the growing need for financial institutions to quantify, disclose, and manage climate-related financial risks. The engagement also aligns with the Reserve Bank of India’s recent climate disclosure guidelines and global frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD).
The collaboration reaffirms AU SFB’s commitment to resilient banking systems and sustainable financial inclusion It will include three key components:
- Physical Risk Assessment:
A detailed evaluation of AU SFB’s loan portfolio exposure to physical hazards such as floods, droughts, and extreme weather events. Using Intergovernmental Panel on Climate Change (IPCC) climate scenarios and long-term projections (up to 2100), this study will produce a risk heatmap highlighting vulnerable geographies and sectors. - Transition Risk Assessment:
Analysis of potential financial exposure arising from policy shifts, market transitions, and technological disruptions linked to India’s low-carbon goals. AU SFB will use Network for Greening the Financial System (NGFS) scenarios to model these risks. - Financed Emissions Calculation:
Application of the Partnership for Carbon Accounting Financials methodology to measure financed emissions (Scope 3, Category 15) across key asset classes — including corporate loans, SME finance, real estate, and sovereign bonds — for FY 2024–25 and FY 2025–26.
To support the technical execution of this advisory program, IFC will work with StepChange, a specialized climate risk solutions provider, for analytical modeling and quantification.
Sanjay Agarwal, Founder, MD & CEO, AU Small Finance Bank, said: "On World Environment Day, we reaffirm our belief that the path to inclusive growth must also be sustainable. This partnership with IFC represents a strategic inflection point in AU SFB's sustainability journey. As a values-driven organization serving India's underbanked regions, we recognize that climate resilience is integral to long-term financial inclusion. By systematically integrating climate considerations into our risk architecture and decision-making, we aim to future-proof our portfolio and mobile capital for India’s climate transition. This initiative aligns with our dual commitment to responsible banking and creating sustainable value for all stakeholders."
AU SFB has already demonstrated strong sustainability leadership by launching a Green Fixed Deposit product that has raised Rs 1,178 crore as of March 31, 2025, with proceeds allocated exclusively to Renewable Energy and Clean Transportation sectors. The bank has achieved a Sustainalytics ESG Risk Rating of 17.1 (Low Risk) and holds an AA rating in the MSCI ESG assessment.