Ecosystem fears cleantech funding gap as ISED pauses SDTC funding after mismanagement investigation

François-Philippe Champagne, Canada’s minister of innovation, science, and industry.
ISED-commissioned report found conflict of interest, governance issues at SDTC.

The Government of Canada has suspended Sustainable Development Technology Canada (SDTC) from funding new projects following the conclusion of a third-party investigation into allegations of mismanagement at the federal cleantech investment agency.

Other investors and industry stakeholders echoed Boreal Ventures managing partner David Charbonneau’s assertion to BetaKit that an extended financing pause could have a “massive impact on the ecosystem.”

SDTC confirmed it has halted approval of new projects and will not accept new applications until it implements the recommendations.

As first reported by The Globe and Mail, Innovation, Science and Economic Development Canada (ISED) commissioned the probe this spring after ex-SDTC employees alleged some entrepreneurs with ties to SDTC’s management and board received preferential treatment when seeking funding from SDTC, among other claims. ISED brought on Raymond Chabot Grant Thornton (RCGT) to conduct a fact-finding exercise.

These efforts are now complete, and the resulting RCGT report, obtained and reviewed by BetaKit, discovered evidence of conflict of interest and governance issues at SDTC involving the organization’s CEO and board members.

“The results of our procedures indicate inconsistencies and opportunities for improvement in the application of general governance and conflict of interest practices, compliance with the contribution agreement (selection, approval, eligibility, funding, and monitoring) and human resource practices,” states the RCGT report.

In response, ISED has taken a slew of “immediate corrective actions,” delivering a detailed plan for addressing these issues that ISED expects SDTC to implement by December 31, 2023, pausing funding for new SDTC projects until these steps are taken, and exploring further options to strengthen the governance oversight of SDTC.

In an Oct. 3 statement, François-Philippe Champagne, Canada’s minister of innovation, science, and industry, said that the RCGT report “identified a number of instances in which SDTC was not in full compliance with the contribution agreement made with ISED,” which informs how SDTC distributes the money it receives, noting that it also found room for SDTC to improve in areas beyond this agreement and ISED’s scope, including human resources, governance, and oversight. Champagne said he takes these findings seriously.

RELATED: Canada is falling behind on cleantech as capital and companies flee south

For its part, SDTC stated on Oct. 4 that “the report found no clear evidence of wrongdoing or misconduct at SDTC and indicated that no further investigation is merited.” The organization noted that its board and leadership team are reviewing the report and “taking action to implement the recommendations as quickly as possible to minimize disruption to Canada’s sustainable innovation ecosystem.”

SDTC confirmed that it has halted approval of new projects and will not be accepting new applications until this process is complete. In the interim, SDTC said its regular business operations will continue, including the disbursal of funds for existing projects.

Created and financed by the Government of Canada, SDTC is an arm’s-length, not-for-profit foundation tasked with supporting the development and growth of new clean technologies. SDTC provides funding to Canadian companies across the seed, startup, and scaleup stages advancing pre-commercial cleantech with the potential for significant environmental and economic benefits. The agency, and the grants it disburses, represent an important part of the federal government’s overall cleantech strategy.

In a push to help bring Canada’s green-transition efforts up to speed with the United States, which passed a historic $369-billion USD climate and tax deal last year, the Government of Canada promised a multitude of new cleantech and green economy tax measures as part of Budget 2023. However, some experts argue that Canada is still at risk of missing out.

RELATED: Federal budget a “huge win” for cleantech, but Canada still at risk of missing out

Canadian investors BetaKit spoke to said even a temporary pause on new SDTC funding could have a significant impact on Canada’s early-stage cleantech startups, at a time when venture and debt financing have become even harder to secure, and cleantech capital and companies are already fleeing south.

“SDTC fills a critical gap in the early financing of clean technology companies in Canada,” Venbridge SVP and CleanTech North managing director Bryan Watson told BetaKit, noting that even the December 31 pause has companies panicked. “While good governance is essential, and corrective measures may be needed, it is absolutely imperative that funding be resumed as soon as possible.”

“A delay of a few months can be a death sentence for a cleantech startup.”
– Canada Clean Tech Alliance

Watson added: “Companies rely on the catalytic impact of SDTC funding and, in this economy, if their funding remains paused for months on end, companies that were beginning to ramp up expecting the lie funding was en route will run out of cash runway and die. Venbridge can help extend that runway, but only for so long. We, and the entire cleantech sector, need reliable partners in the ecosystem.”

Charbonneau told BetaKit that this SDTC pause “adds to an environment that was already difficult for early-stage startups,” adding, “from a venture standpoint, we can only hope corrective measures will be swiftly put into place while making sure the foundation laid out by the upcoming report assures the continuation of the agency.”

Meanwhile, the Canada Clean Tech Alliance noted in a statement that SDTC “has been playing a vital role for Canadian climate innovation and the successful deployment of Canadian cleantech at home and abroad,” calling the agency “a key driver of Canada’s transition to net zero.”

The organization highlighted the need for SDTC “to implement the corrective measures swiftly so that funding can begin to flow again and that disruption to the cleantech ecosystem is minimized,” adding, “a delay of a few months can be a death sentence for a cleantech startup.”

UPDATE (10/05/23): This story has been updated to include additional commentary from David Charbonneau.

Feature image courtesy Flickr.

Josh Scott

Josh Scott

Josh Scott is a BetaKit reporter focused on telling in-depth Canadian tech stories and breaking news. His coverage is more complete than his moustache.

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