Cleantech startups waiting for funding from SDTC are facing delays amid new requirements

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Cleantech companies approved for funding by Sustainable Development Technology Canada are seeing payments delayed after an increase in reporting requirements, including confirming that there are no conflicts of interest involving the federal agency.

Some startups have waited weeks for scheduled payments, despite having met milestones that were spelled out in their approvals, they say. For small technology developers with few other sources of capital, it has complicated their ability to plan for spending needs.

SDTC, the country’s biggest funder of green technology, has been under a government-imposed suspension on new grants for projects since early October, when a report from an investigation showed evidence of conflict policy breaches and inappropriate funding. That freeze had been expected to be lifted by the end of last year but remains in place as a review of SDTC’s human-resources practices, sparked by employee complaints, drags on.

This suspension, ordered by Industry Minister François-Philippe Champagne after complaints by whistle-blowers, has been highly disruptive to the Canadian cleantech industry that relies on the grants. Startups that were near final approval were left in limbo. While SDTC last year assured companies that had already been receiving payments that it would be business as usual, they are now also being affected.

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Janemary Banigan, spokesperson for SDTC, said companies must now meet additional requirements to make sure that the agency remains on side with its contribution agreement, the document that guides how it distributes public money.

The first investigation, conducted by an accounting firm on behalf of the department in charge, Innovation, Science and Economic Development Canada, found that some of its funding appeared to be inconsistent with that agreement and that some board members approved payments that benefited companies in which they had interests.

The new requirements include additional confirmation that conflict-of-interest policies are not contravened and companies remain eligible to receive funding, Ms. Banigan said, noting they are among a series of corrective governance measures that were ordered by Mr. Champagne.

“All disbursements continue to be paid in accordance with the company’s ability to meet project milestones, as is our standard practice,” Ms. Banigan said in a statement. “However, the implementation of these new requirements has resulted in a small delay in payment processing. We expect these delays will be temporary as we work through implementation across our portfolio.”

One chief executive officer whose company receives SDTC money said the delay has prompted questions among its other investors about the reliability of its funding, and that puts its reputation at risk. The Globe and Mail is not naming the executive because they fear discussing the issue publicly may put future funding in jeopardy.

To access the agency’s grants, SDTC requires applicants to arrange other backers from provincial programs and private-capital firms. After approval, the grants are distributed in tranches as companies meet set milestones in the development of their projects.

The delays and continued freeze on new funding are occurring in a difficult market for cleantech, in which investors are hesitant to make long-term bets, especially on precommercial technology. This was a frequent topic of conversation at a conference for startups in Toronto this past week, said Bryan Watson, senior vice-president at Venbridge Capital and managing director of CleanTech North, which provides support to emerging companies.

New reporting burdens are not a surprise, given sensitivity over SDTC’s troubles, but they should not cause further disruption in the ecosystem, Mr. Watson said.

“They’re not wrong to want that detail if that’s what was in the contribution agreement, or even in the spirit of the agreement with the companies,” he said. “But if a company’s been drawing down for six months, a year, with a certain level of expectations and were operating in good faith, that extra timeline of penalizing them is unfortunate.”

The development follows high-profile investigations and resignations at SDTC, including those of its CEO and its chair in late 2023. Those positions remain unfilled.

The federal Auditor-General has launched a probe of the agency, and the ethics commissioner is reviewing former chair Annette Verschuren’s role in approving nearly $40-million of pandemic-related payments to SDTC’s portfolio of companies in 2020 and 2021, including one of which she is the CEO.

Ms. Verschuren said she and the other directors “took the position that these COVID-19 payments were broad. It was an operational issue.” She also said she had acted on advice of legal counsel.

Audrey Champoux, spokesperson for Mr. Champagne, did not comment on the new requirements for disbursements and said she could offer no timeline for when the suspension on new funding could be lifted. It is contingent on the minister receiving the report on human-resources practices, she said.