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Innovation, Science and Industry Minister Francois-Philippe Champagne speaks with reporters before attending a cabinet meeting on Dec. 12 in Ottawa.Adrian Wyld/The Canadian Press

Canadian cleantech executives are growing worried about the sector’s ability to raise capital as the future of Sustainable Development Technology Canada – a crucial source of funding – remains uncertain after months of corruption accusations and political controversy.

Entrepreneurs, venture capitalists and even a whistle-blower who lodged the initial complaints about SDTC, say the publicly funded federal agency has played a vital role in expanding environmental technology to a scale that puts Canada in the industry’s global big leagues.

According to its own statistics, companies backed by SDTC generate annual revenue of $3-billion, and have created 24,500 jobs.

However, its ability to grant money remains suspended after nearly three months, and some worry about long-term damage to the brand after an investigation that showed evidence of conflict-of-interest breaches and inappropriate funding.

Industry insiders wonder if the Liberal government – or a future Conservative one – could vastly restructure SDTC or even shut it down just as demand for climate-change solutions is surging.

SDTC has been unable to fulfill its role as Canada’s largest funder of green technology since early October, when Industry Minister François-Philippe Champagne froze its funding.

Since then, long-time chief executive Leah Lawrence and board chair Annette Verschuren have resigned, and the federal Auditor-General has launched her own investigation.

Mr. Champagne is in the process of verifying whether SDTC’s board has adequately implemented a series of corrective measures he directed.

In recent weeks, his department also hired a law firm to pore over the agency’s human-resources practices, after current and former employees alleged a hostile work environment. The minister has said that this probe must also be completed to his satisfaction before SDTC can resume its normal operations.

Industry officials worry that the delay could send cleantech investors to the United States, which is offering massive subsidies for green technology through President Joe Biden’s Inflation Reduction Act. They say that risk puts the onus on the federal government to make the necessary internal changes to allow SDTC to resume its grants, without disrupting a process that has helped expand the sector for more than two decades.

Jane Kearns, partner at Evok Innovations, a cleantech venture-capital fund, said the SDTC model has worked by providing entrepreneurs with both market expertise and capital-raising experience.

Ethics watchdog to probe conflict-of-interest allegation against SDTC chair

The way the process works, SDTC staff perform financial and technical due diligence for companies seeking funding, but also require applicants to assemble other financial backers from provincial programs and private-capital firms.

“It basically makes it possible for those early stage companies to get that funding that allows them to move forward,” said Ms. Kearns. Evok’s portfolio companies have received SDTC grants.

“What’s happened in the ecosystem since the funding from SDTC dried up,” she added, “is we’ve got companies that were counting on that funding, and have been working towards that for often a year or more, and all of a sudden those companies are basically hung out to dry.”

Hyperion Energy, an Ottawa-based startup, secured SDTC money two years ago as part of a seed-funding round to develop technology to transform carbon emissions into solid material that is added to concrete. The grant helped it scale its business up by 500 per cent, and it is now scaling up a commercial pilot with Lafarge Canada.

Hyperion has been sketching out plans for its next fundraising in 2024, and CEO Heather Ward said she hopes that any changes to how SDTC operates do not put up new barriers to securing capital.

“If we want to keep our cleantech companies in Canada, I think it’s a massive risk if we don’t get SDTC back on line quickly,” Ms. Ward said in an interview. “There really isn’t another national funding agency, especially for the early stage, when you are precommercial and prerevenue. It can be a very long trajectory to get to market,” Ms. Ward said.

Mr. Champagne has said that the government aims to “get to the bottom” of SDTC’s problems through investigations that are under way and “restore confidence” in the agency so it can keep funding Canadian cleantech. The government’s report detailed evidence of inappropriate funding, citing $38-million in pandemic support payments for all portfolio companies, including those connected to members of the board.

In the House of Commons and in parliamentary committee hearings, opposition Conservative MPs have seized on the controversy, referring to SDTC as a “billion-dollar Liberal green slush fund.” Conservative Leader Pierre Poilievre has said he would shut it down.

SDTC has operated since 2001 under both Liberal and Conservative governments, having provided funding for more than 650 companies. There have been significant successes, such as Carbon Engineering, a direct-air carbon-capture developer, which received $3-million in SDTC funding in 2015. Occidental Petroleum Corp. OXY-N bought the Squamish, B.C.-based company in August for US$1.1-billion.

If SDTC is to continue, its board faces the task of finding a new CEO who can help rebuild its reputation with Canadians so it can support technology that will be expanding after countries at the COP28 climate conference this month pledged to redouble efforts to move to a low-carbon global economy.

“The brand, I think, can be repaired from whatever damage, real or perceived, because the model is strong, and it has a solid foundation,” said Heather Campbell, former executive director of clean technology at Alberta Innovates, a provincial agency. She was a regional director at SDTC from 2014 to 2017.

That model, mixing technical expertise with financing, mirrors successful early stage tech programs in other countries, such as the The Advanced Research Projects Agency-Energy in the United States and Advanced Research and Invention Agency in Britain.

One of STDC’s strengths has been its staff’s attention to financial and technological detail when vetting applications. This is often relied upon by venture-capital and private-equity partners who join funding rounds, Ms. Campbell said.

The agency has proved itself as key to developments in fields where demand is growing amid the global push to net zero, such as sustainable aviation fuels and critical-minerals processing. Canada should be positioning itself as an important exporter of such know-how, she said.

SDTC announces interim CEO, as embattled federal clean-tech agency plots next steps

For now, emerging companies seeking capital remain in limbo in a cleantech financing market where other sources of funding have become scarce because of economic risks, said Bryan Watson, senior vice-president at Venbridge Capital and managing director of CleanTech North, which provides support to emerging companies.

“The panic is real,” Mr. Watson said. “We’ve had our various holiday dinners for different entities over the last two weeks, and there are a lot of companies that were on the goal line, that were expecting that funding to be coming in.

“They are still scrambling like mad to try and plug the gap that was left by this and because there is no end in sight, you can’t plan around it.”

Developments in the Sustainable Development Technology Canada saga

November, 2022 – Whistle-blowers, including former employees, contact the federal government alleging some entrepreneurs with close ties to top SDTC officials got preferential treatment. They also alleged improper pandemic support payments totalling nearly $40-million and complain of a toxic work environment. The whistle-blower group makes its case to the Auditor-General, Privy Council Office and Innovation, Science and Economic Development Canada (ISED), the department in charge of SDTC.

February, 2023 – Senior ISED officials study a thick binder of materials compiled by the whistle-blowers, including financial and human-resources data, much of it from internal SDTC files, and make the decision to appoint a third party to conduct a fact-finding mission on behalf of the department. SDTC’s board appoints the law firm Osler, Hoskin & Harcourt LLP to conduct its own review.

April, 2023 – The Globe and Mail reports that Ottawa accounting firm Raymond Chabot Grant Thornton begins its investigation of SDTC, conducting interviews with CEO Leah Lawrence, board chair Annette Verschuren and other officials.

October, 2023 – Industry Minister François-Philippe Champagne releases report of the investigation, which details evidence of conflict-of-interest breaches and lax governance involving the organization’s chief executive and board members. He suspends SDTC’s ability to grant money to cleantech companies until the board and management complete a series of corrective measures to improve governance. He leaves top officials in place.

Cleantech industry officials decry the funding freeze, arguing that they are ultimately the ones punished by the government’s move by having their financing plans frozen. Mr. Champagne has said funding could resume by year end.

November, 2023 – Whistle-blower releases recordings of meetings with a senior bureaucrat that appear to show ISED was preparing to terminate SDTC’s board and management.

Federal Auditor-General Karen Hogan launches her own a probe into SDTC.

Ms. Lawrence and Ms. Verschuren tell a House ethics committee that they reject the findings of the government’s investigation, saying it is riddled with errors about STDC’s policies and procedures.

Days later, Ms. Lawrence resigns, saying she has been subjected to “a sustained and malicious campaign to undermine” her leadership.

Federal Ethics Commissioner opens an investigation into Ms. Verschuren’s role in approving pandemic-relief payments to companies in the agency’s portfolio, including one she leads as chief executive. She announces her resignation, effective Dec. 1.

December, 2023 – Whistle-blower accuses government of softening the final report of the investigation to protect SDTC’s leadership. In a hearing, he alleges ISED officials knew of serious financial and governance infractions, as shown by the recordings, and in the end, covered up the full extent of the problems. Mr. Champagne denies this, saying the fact that the government launched the probe showed it was “responsible and transparent.”

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