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Wind turbines generate power on Dalhousie Mountain, N.S. on April 23, 2010.ANDREW VAUGHAN/The Canadian Press

Ottawa has launched an investigation into allegations of financial mismanagement and conflict of interest at the main federal funding arm for early-stage green technology, a pillar of the government’s cleantech strategy.

The probe into Sustainable Development Technology Canada (SDTC), an agency that has provided more than $1.5-billion to startups since 2001, was prompted by a group of former employees who allege that some projects put forward for funding by entrepreneurs with close ties to the agency’s management and board got preferential treatment, according to two people familiar with the matter. At times that meant funding companies that may not have required taxpayer-funded grants because they were already generating revenues and raising large sums privately, the sources allege.

Some former staff interviewed by The Globe and Mail also described a volatile workplace with high turnover rates during the tenure of chief executive officer Leah Lawrence, a prominent voice in the cleantech field who has held the position since 2015. Since the start of 2022, nearly 20 people have quit or were fired, in some cases after stress-related leaves, out of a full-time complement of staff of 55 to 65 people, the sources said. None of the allegations has been proven.

The Globe is not identifying the sources because they are not authorized to discuss the matter while it is under review.

An Innovation, Science and Economic Development Canada (ISED) spokesman said in an e-mail that the department “received allegations related to the governance and management” at SDTC in February and has hired Ottawa-based accounting firm Raymond Chabot Grant Thornton to determine if the allegations have merit and if further action is required. The review is expected to be completed by mid-May.

“Depending on the results of the fact-finding review, ISED will not hesitate to take any necessary steps,” Sean Benmor said.

Internal documents reviewed by The Globe show that, on at least two occasions, startups received funding after outside reviewers recommended they be rejected or, at the least, approved on weak grounds. The documents were among those used to support the allegations that prompted the third-party probe.

For its part, SDTC said it takes the allegations seriously and that a special committee of its board of directors is reviewing the matter. The agency said it has hired independent legal counsel and launched its own investigation. “SDTC has fully cooperated with the review, which includes an analysis of documents, as well as interviews with relevant parties,” Janemary Banigan, a spokeswoman, said in an e-mail.

Ms. Banigan defended SDTC’s workplace culture and management. The agency aims to foster “an open and supportive work environment,” she said, adding that leaders conduct one-on-one meetings with staff to set objectives, review results and agree on areas of improvement. The agency has also launched an employee engagement survey, she said.

Ms. Lawrence did not respond to a request for comment.

Public funding of clean technology was already in the spotlight before the government released its 2023 budget, which emphasizes improving Canada’s competitive position in the race to achieve net-zero emissions. The budget included $20.9-billion in tax credits aimed at clean electricity, hydrogen production and cleantech manufacturing.

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SDTC plays an important role. It leads early-stage financing, partnering with provincial agencies and private investors to take startup technology to the commercialization stage. It recently expanded its role to help scale up more established companies and expand their market reach. It supports entrepreneurs developing products dealing with a range of environmental issues, including climate change, the circular economy, deforestation and energy efficiency.

Annette Verschuren, the chief executive of NRStor Inc. and a former CEO of Home Depot Canada, has been the chair of SDTC since 2019, taking over from former BlackBerry co-CEO Jim Balsillie. NRStor, an energy storage developer, received $2.3-million of SDTC funding between 2018 and 2021.

Ms. Verschuren, who was appointed by the government, stressed that she reported her potential conflicts to the minister’s office and SDTC during the vetting process and received clearance from the Ethics Commissioner before taking on the role. “At every step in the process, I disclosed that NRStor received funds from SDTC,” she said in a statement. “Given SDTC’s significant role in funding Canadian sustainability entrepreneurs, I also disclosed the other boards on which I serve.”

“I am confident that the independent review will confirm what we already know – that these allegations are unfounded and without merit,” she said.

Annual funding of the agency is set to double to $318-million by 2025-26 from just over $157-million last year, according to its agreement with the government. SDTC’s executive compensation package includes incentives tied to meeting annual granting targets.

SDTC has a well-defined due diligence and approval process for funding projects that includes a series of internal reviews and the assistance of outside experts to assess applicants’ technical and business prospects.

The sources alleged that rules were not always followed and that they brought those allegations to ISED.

External auditors Ernst & Young LLP annually scrutinize the agency’s financial statements and controls over project approvals, Ms. Banigan said, adding that auditors have identified no control deficiencies or other areas of concern. The results of a regular evaluation by ISED’s audit and evaluation arm, conducted every five years, are expected to be released in the coming weeks.

According to the documents, in one case from December, 2021, agtech company SemiosBio Technologies Inc. sought $17-million for a project billed as a crop-management platform using a wireless sensor network. SDTC chose Chris Wormald, principal at tech investment firm ViraMito Inc. and a former executive at BlackBerry, to review the request.

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Mr. Wormald was chosen to perform the review because of his expertise and “familiarity with the SDTC process,” according to the documents. In his review, he said he had struggled with the application because the money would go to a product that was not seen as a priority for SemiosBio. What’s more, it did not need SDTC’s money to proceed with the project, he wrote. The company was generating its own revenue and making acquisitions.

However, he said the company had been a good steward of SDTC capital in the past, so he gave the project a “weak recommend.” But he also urged SDTC’s management to examine how this project might fit into the agency’s mission. SemiosBio received the funding from SDTC.

In April, 2022, SDTC evaluated a proposal by Kitchener, Ont.-based Miovision, which provides traffic data and analysis for cities, including intersection monitoring. Mr. Wormald was a Miovision director at the time. He declined to comment on the matter.

According to the documents, Lijun Sun, a civil engineering professor at McGill University, reviewed the application for funding to develop hardware and an algorithm to make greenhouse gas emission simulations and optimize network signals.

Prof. Sun, an expert in urban computing and smart transportation, wrote that the technology had merit but the proposal itself was vague and not well supported by the documents Miovision had submitted. He also wrote that he believed the team did not understand the project’s technical challenges. He recommended rejection.

However, 18 days later, reviewing a slimmed-down version of the proposal, Prof. Sun said it was more feasible, though he still urged Miovision to bring more machine learning and traffic engineering expertise into the project. He changed his ruling to “weak recommend.” He did not respond to requests for comment.

The company was awarded $16.6-million, after having already raised more than $145-million in series A and B funding rounds from investors such as Telus Ventures, Business Development Bank of Canada and McRock Capital. It had also generated more than $120-million in revenue over the previous three years and made an acquisition, according to documents.

On Monday, Miovision announced it was making another acquisition. It said it is buying U.S. traffic-signal control company Global Traffic Technologies LLC in a US$107-million deal backed by Telus, Maverix Private Equity and Export Development Canada.

The former employees lodging the complaints have made no allegations of wrongdoing by companies funded by SDTC, including SemiosBio and Miovision.

Ms. Banigan said the agency’s investment team and two third-party consultants review applications, and all consultants are required to disclose any conflicts before conducting any work for SDTC. She said companies applying for funding are not disqualified for generating revenues, pointing out that’s not the same as being profitable. It may take up to 15 years for technology to become commercially viable, she added.

In another instance, the SDTC board approved one-time payments to all companies in its portfolio in 2020, saying the money, a total of $17.7-million, would help the enterprises weather the economic downturn brought about by pandemic measures, according to the documents. It said SDTC managers, in consultation with the organization’s legal counsel, determined that a letter outlining the increase in contributions would suffice as a modification to financial agreements.

The following year, despite the fact the federal government was already offering companies in all industries a range of pandemic supports, SDTC companies split a further $20-million in “pandemic recovery funding,” equal to a 5-per-cent increase in project funding.

Ms. Banigan said the pandemic relief measures were approved by SDTC’s board and developed with the support of senior officials at ISED. In the first instance, the funds went to the companies before the government’s first relief packages were rolled out. The following year, companies struggled with a series of issues, including supply chain disruptions and border closings, she said. “SDTC is proud of the role we played in supporting the Canadian small businesses in our portfolio to survive and thrive in a very uncertain time,” she said.

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