Ottawa suspends cleantech funding agency after probe uncovers conflicts of interest, lax governance

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Ottawa has suspended its main federal funding agency for early-stage green technology from granting money, after a lengthy investigation uncovered evidence of conflict-of-interest breaches and lax governance involving the organization’s chief executive and board members.

Industry Minister François-Philippe Champagne released the third-party investigators’ final report on the agency, Sustainable Development Technology Canada, late Tuesday, following a series of questions to the ministry from The Globe and Mail.

He laid out a series of corrective actions SDTC’s board must undertake to deal with contraventions of its contribution agreement with the government, a number of which are highlighted in the report. The agreement guides how SDTC distributes public money.

During the five-month investigation, forensic accountants reviewed allegations former employees had made against SDTC chief executive Leah Lawrence and members of the agency’s board, including its chair, Annette Verschuren, and conducted interviews with the executives, according to one source briefed on the findings before the report was released. The Globe and Mail is not naming the source because they were not authorized to speak publicly on the matter.

The employees had accused the agency’s leadership of breaching conflict-of-interest rules and using SDTC funds to finance ineligible projects, and the report shows some of evidence of that.

The investigation, commissioned by Innovation, Science and Economic Development Canada, the ministry in charge of SDTC, found a number of cases where the agency had not followed proper guidelines for granting money to clean technology companies. The alleged breaches include instances where conflict-of-interest policy was not followed or not consistently applied. Other cases involved SDTC granting funding to companies and other organizations that appeared to “contravene the spirit” of the contribution agreement, including some that were too well established to qualify for early-stage financing. Parts of the report are redacted to remove company names and other information.

Mr. Champagne said in a statement that he takes the findings seriously. He issued a number of directives, including that SDTC temporarily halt funding of all new projects until corrective measures are taken by its board. He directed SDTC to ensure there is a clear, consistent and transparent process for declaring real or perceived conflicts of interest.

The board must make sure that all projects receive the same level of due diligence, and invite a ministry official to all meetings of directors and SDTC’s project review committee. The directives must be completed by Dec. 31, the minister said.

Janemary Banigan, a spokesperson for SDTC, said the report had identified “no clear evidence of wrongdoing or misconduct,” and that there was no call for further investigation. “The SDTC board of directors and leadership team are carefully reviewing the report and are taking action to implement the recommendations as quickly as possible to minimize disruption to Canada’s sustainable innovation ecosystem,” she said in a statement. Ms. Lawrence and Ms. Verschuren did not respond to requests for comment on Tuesday.

After the investigation began, SDTC brought in legal counsel from the national law firm Osler, Hoskin & Harcourt LLP to conduct an internal review. Ms. Banigan declined to say on Tuesday what the results of that review had been, but she told the CBC last month that it had found nothing to substantiate the allegations.

The ministry’s investigators, with the Ottawa-based accounting firm Raymond Chabot Grant Thornton, found instances in which disclosure documents were missing, as well as cases in which such documents were apparently filled out after the fact, when senior executives and directors, including Ms. Lawrence, were asked about them as part of the probe, the source said. In some cases, senior staff and directors declared conflicts of interest but did not recuse themselves from funding discussions, the source added.

The conclusion of the investigation process comes at a key time for Prime Minister Justin Trudeau’s government, which is struggling to advance its climate agenda and convince Canadians that public money is being well spent. Last month, the Parliamentary Budget Officer said billions of dollars in federal subsidies for two electric vehicle battery plants will take 20 years to break even – not five, as the government has suggested.

SDTC’s grants are far smaller, but they play a key role in Ottawa’s environmental push. The organization has put more than $1.5-billion into clean technology startups since 2001. It leads early-stage financing, partnering with provincial agencies and private investors to take new technology to the commercialization stage. It recently expanded its role to help scale up companies that are more established and expand their market reach. Its corporate plan calls for it to spend $130-million in the 2022-23 fiscal year, and $156-million in 2023-24.

Ms. Verschuren, a well-known figure in Canada’s business community – she is a former CEO of Home Depot Canada and became SDTC’s board chair in 2019 – spoke at the organization’s annual public meeting last week. She touted the checks and balances within SDTC’s funding process. “We’ve heard from our companies that SDTC funding gives them greater credibility in the market and the ability to access more clients,” Ms. Verschuren said. “They’ve also said that our due diligence process is rigorous, that they emerge at the end of the process as a better company.”

The ministry launched the investigation in April. It, the federal Auditor-General and the Privy Council Office had all received whistleblower complaints about SDTC last year. Some of the complaints alleged SDTC had made grants to startups and technology accelerators with ties to its own senior management, or to companies or technology accelerators that were ineligible because they were too established. The complainants also alleged a volatile workplace under Ms. Lawrence, marked by high staff turnover rates and stress-related leaves.

SDTC has previously defended its workplace culture and management, saying it aims to foster “an open and supportive work environment.”

Among the minister’s directives is a requirement to review and update human resources policies and make sure employees have a trusted and confidential process for reporting perceived wrongdoing.

The report highlighted two one-time payments to all companies in SDTC’s portfolio in 2020 and 2021. At the time, SDTC said the money, a total of $17.7-million, would help the enterprises weather the economic downturn brought about by pandemic measures. It said SDTC managers, in consultation with the agency’s legal counsel, had determined that a letter outlining the increase in contributions would suffice as a modification to financial agreements with the companies.

The following year, even as the federal government offered 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. The payments had no performance criteria attached, and no restrictions for cases where directors had ties to companies receiving the cheques.

“Covid-19 payments did not appear to be consistent with the requirements of the contribution agreement as the payments do not require project cost eligibility or monitoring and reporting,” the report said.