Embattled federal cleantech agency to be folded into National Research Council, after Auditor’s report

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Ottawa’s main funding arm for early-stage green technology is being stripped of its independence and folded into another federal agency after the Auditor-General detailed a series of conflict-of-interest breaches and ineligible funding.

The operations of Sustainable Development Technology Canada (SDTC), which has been at the centre of allegations of financial mismanagement and governance lapses, will be made part of the National Research Council of Canada (NRC) to improve oversight, Industry Minister François-Philippe Champagne said on Tuesday.

It has been a stand-alone foundation since 2001 with its own board of directors guiding how it distributes taxpayer dollars to cleantech startups. It had provided grants to more than 650 companies before its funding for new projects was frozen in October.

“As a Government of Canada organization, the NRC is subject to rigorous and stringent oversight of its personnel and finances. This structure will help rebuild public trust while increasing accountability, transparency and integrity,” Mr. Champagne said in a statement.

SDTC will be supervised by a board made up of three directors who are former senior public servants. They will be appointed for one-year terms and led by chair Paul Boothe. Its staff will be offered employment at the restructured organization, the minister said.

Mr. Champagne announced the changes after Auditor-General Karen Hogan issued a report that concluded SDTC failed to follow conflict-of-interest policies as it awarded tens of millions of dollars to companies with ties to its own directors and managers.

In addition, the agency funded numerous cleantech projects that did not meet criteria in the contribution agreement that governs how it distributes public money, or deliver the promised reductions in carbon emissions, she reported.

It amounted to “significant lapses” in governance and handling of public money, she said.

“These are serious concerns that, in my mind, needed to be addressed and shouldn’t have happened,” Ms. Hogan said in an interview. “The board should not have failed in such an oversight mechanism.”

Her audit, and the minister’s decision to clip SDTC’s wings, follow an investigation last year that was triggered by whistle-blowers who complained of conflicts, financial mismanagement and poor human-resources practices.

Ms. Hogan’s conclusions largely support the allegations and the findings of the initial investigation, conducted on behalf of the department in charge, Innovation, Science and Economic Development Canada (ISED). Mr. Champagne leads that department. Ms. Hogan also criticized ISED for not sufficiently monitoring SDTC’s compliance.

The minister said he agreed with her conclusions.

“The various reviews conducted – including the Auditor-General’s report – have revealed serious weaknesses in SDTC’s governance, prompting a new delivery approach to government support for the cleantech sector,” he said

The audit found 90 instances where, according to minutes of SDTC board meetings, funding for projects was approved when conflict-of-interest policies weren’t followed. That represented $76-million awarded through the six-year audit period that ended in 2023. The report also criticized use of an outside contractor, who had ties to companies seeking funding from the agency when he was brought in to evaluate projects.

Ms. Hogan examined 58 approvals for eligibility under the agency’s contribution agreement and found that 10, representing $59-million in funding, did not meet requirements. She estimated that one in 10 of the remaining projects approved under SDTC’s start-up and scale-up programs were also ineligible.

SDTC, the country’s biggest funder of green technology, has been under a government-imposed suspension on new grants for projects since early October. This freeze has been highly disruptive to the cleantech sector. Startups that were near final funding approval when the minister imposed the freeze were left in limbo.

The minister said on Tuesday he is lifting the suspension, and SDTC said it would resume processing applications in its queue and accepting new ones in the coming weeks.

The first investigation detailed conflict policy breaches and lax recordkeeping. It questioned $38-million in pandemic-relief payments to all SDTC companies in 2021 and 2022, including those in which directors had interests.

The Auditor-General made note of those payments, saying that in 63 cases, directors voted in favour after having previously declared conflicts. Directors reported they had received legal advice that recusals were not required. In a third of those cases, directors said they no longer had interests at the time of the votes. However, SDTC did not verify that when the votes were held, the report said.

SDTC said it accepts the Auditor-General’s findings. Spokesperson Janemary Banigan said it had taken steps to strengthen its conflict-of-interest policies and reporting, and introduced clearer guidelines for directors.

A second report on SDTC released on Tuesday, which focused on employment and human-resources practices complaints, was more exculpatory – to the disappointment of the whistleblowers.

The law firm McCarthy Tétrault, which the government commissioned to examine those complaints and which interviewed 62 current and former employees, found the facts did not support allegations such as workplace harassment, bullying or discriminatory firings.

Although most former employees interviewed for that report described a negative experience with the agency, the law firm determined that claims of a toxic workplace were held by a minority of staff. It attributed the claims to disagreement with management style and decisions, organizational changes and conflict-of-interest issues.

The initial reaction from the cleantech sector to Tuesday’s news was relief that funding applications will now be processed again, and hope that the NRC’s experience providing technology support through its Industrial Research Assistance Program (IRAP) will minimize further turbulence.

“It remains to be seen how smooth the transition is, but IRAP already has a relationship with pretty much every cleantech startup in Canada,” said Marty Reed, a partner at the venture-capital firm Evok Innovations.

“At the end of the day, all I really care about is that funding gets flowing again.”

With reports from Adam Radwanski