Ottawa shutting down SDTC and transferring its programs to the National Research Council

The federal government will shutter Sustainable Development and Technology Canada (STDC) and transfer its funding programs to the National Research Council of Canada.

The move comes after a report released June 4 by Canada’s Auditor General, Karen Hogan (photo at left) that found “significant lapses” in SDTC’s management of public funds.

Hogan found that SDTC violated its conflict of interest policies in 90 cases, awarded $51million to 10 projects that didn’t meet eligibility criteria, and frequently overstated the environmental benefits of the projects it supported.

“Overall, we found significant lapses in Sustainable Development Technology Canada’s governance and stewardship of public funds,” her report said.

Created in 2001, SDTC is an arm’s length, not-for-profit federal foundation that supports small and medium-sized businesses in the cleantech sector. It entered into a five-year, $1-billion agreement with Innovation, Science and Economic Development (ISED) in 2021.

“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,” François-Philippe Champagne (photo at right), Minister of Innovation, Science and Industry, said in a statement.

SDTC – Canada’s biggest funder of clean technology – has played a critical role in the growth and success of the clean technology sector in Canada, he said. Established by an Act of Parliament more than 20 years ago, SDTC has a unique governance model that places most of its activities at arm’s length.

“While this model may have appeared suitable at the time, a new governance approach will strengthen oversight and accountability to meet today’s expectations of stewardship,” Champagne said.

Over the coming months, SDTC programming will transition to the National Research Council (NRC), which he noted has “vast experience” supporting innovative, tech-focused SMEs, under programs such as the Industrial Research Assistance Program.

“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,” Champagne said.

To support the transition process, the government has named a new SDTC board chairperson and two new board directors who'll lead the SDTC in the transfer of its programming to the NRC. 

The new board chair and two new directors are all former senior public servants. They are: Paul Boothe as the new board chair, and Catherine (Cassie) Doyle and Marta Morgan as directors – all appointed for one-year terms.

Boothe is a former senior associate deputy minister of industry (2007 to 2010), and deputy minister of the environment (2010 to 2012). He retired from the federal public service in July 2012.

Morgan, prior to her retirement from the federal public service, served as  deputy minister of foreign affairs, deputy minister of Immigration, Citizenship and Refugees, and associate deputy minister in Finance Canada and Industry Canada.

Doyle is a former deputy minister of Natural Resources Canada and is currently a director at the Canada Energy Regulator.

Champagne said SDTC employees, who he noted “have gone through a difficult and challenging period,” will be offered employment with the NRC.

Also, in news that will be welcomed by cleantech founders and their startups, SDTC will be able to resume funding  eligible projects effective immediately, “under a reinforced contribution agreement with ISED.”

In line with the Auditor General’s findings, ISED will enhance oversight and monitoring of funding during the transition period, Champagne said.

In a statement, SDTC said it welcomes the federal government's decision to left the suspension on funding approvals. "We are deploying all available resources to ensure that Canadian cleantech companies are able to access the funding they need as soon as possible."

SDTC said it will resume processing all existing applications for funding in its pipeline and will reopen for new applications in the coming weeks.

"We look forward to the next chapter in our evolution as part of the National Research Council," SDTC said. "There are significant synergies between our respective mandates, and we will work to ensure this transition is as seamless as possible for the companies we serve."

SDTC didn’t follow contribution agreement requirements or conflict-of-interest polices: Auditor General

From March 1, 2017 to December 32, 2023, SDTC under its various programs approved $836 million of funding to 420 projects.

Auditor General Karen Hogan reported that based on minutes of SDTC meetings, there were 90 cases of funding for projects that were approved by SDTC’s board of directors when conflict of interest policies were not followed. These approvals represented nearly $76 million in project funding.

In five cases, SDTC directors had business or personal relationships “that we considered gave the appearance that their private interests conflicted with their role of acting in the best interest of the foundation,” Hogan’s report said.

Her report found that SDTC’s bylaws were missing requirements that were outlined in the foundation's enabling legislation, and that its conflict-of-interest policy for directors “was not fully aligned with this legislation.”

“Conflicts of interest that are not disclosed or managed call into question the objectivity and impartiality of the foundation and its decisions,” her report noted.

“Not managing conflicts of interest — whether real, perceived, or potential — increases the risk that an individual's duty to act in the best interests of the foundation is affected, particularly when making decisions to award funding.”

According to Hogan’s report, SDTC awarded funding to 10 ineligible projects out of sample of 58 examined by the Auditor General’s office.

These 10 projects were awarded $51 million “even though they did not meet key requirements set out in the contribution agreements between the government and the foundation,” her report said. For example, some projects “did not support the development or demonstration of a new technology, or the projected environmental benefits were unreasonable."

In addition, Hogan’s report estimated that one in 10 of the remaining projects in the “Start-up” and “Scale-up” categories – or 16 projects – that SDTC's board approved in the period audited by the Auditor General's office were also ineligible.

SDTC’s board also approved nearly $20 million for “Seed” projects “without completing screening and assessments required by the contribution agreements with government.”

The two COVID-19 relief payments the SDTC awarded – totalling $38.5 million through 220 project modifications – “were approved by the board without project-specific analysis to assess the merit of the payment per project,” Hogan’s report said. “For the COVID-19 relief payments, we found that the conflict-of-interest policy for directors was not followed in 63 cases.”

As for claimed environmental benefits for SDTC-funded projects, “We found that in 12 out of 18 completed projects in our sample, the projected reduction of greenhouse gas emissions were, on average, half of what was presented at the time the project proposals were assessed.”

Hogan’s report criticized ISED for not sufficiently monitoring SDTC’s compliance with contribution agreements between the foundation and ISED, including assessing and monitoring SDTC’s processes to award funding, or monitoring conflicts of interest.

Champagne, however, insisted that as soon as the allegations about SDTC were brought forward, his department “acted swiftly to address the situation.” This included immediately freezing new funding for SDTC projects and initiating two separate independent reviews to examine the allegations.

“These actions were rooted in our commitment to transparency, accountability, and upholding the highest standards of integrity,” he said.

But Aman Chahal (photo at right) , who worked at SDTC as a project manager from January 2017 to October 2018, said she told federal officials  at Canada's Clean Growth Hub what was going on at SDTC in 2018. The Clean Growth Hub is an  interdepartmental initiative of federal government departments and agencies that acts as the coordinating centre for federal cleantech activities.

"They've known since 2018. They created the conditions in which the fraud continued to get worse," she said in an interview.

Despite being the first of the former SDTC employees to go public as a whistleblower, Chahal was never interviewed for her perspective in either of the two ISED-initiated investigations into SDTC.

Folding SDTC into NRC-IRAP isn't going to solve the problem because Canada's cleantech funding programs are a "closed system" rife with bias and favourtism, she said. She cited an innovative cleantech company that tried to get support from NRC-IRAP, but couldn't because the frontline IRAP industrial advisor didn't like the company.

"This is a Canadian problem," Chahal said. If Canada really wants to solve it, it needs to bring in international experts in innovation to help design a support system with rigorous checks and balances, including "double-blind" funding decisions made by impartial, knowledgeable third parties, she said.

Champagne in his statement maintained that many measures recommended in the Auditor General’s report have already been implemented or are underway to address them.

Champagne said SDTC programming, as well as the NRC’s IRAP, will come together under the previously announced new Canada Innovation Corporation (CIC), creating a national-scale integrated platform to support business research and development, and innovation-driven growth. Once the CIC is established by 2026-27, SDTC and IRAP employees will be transitioned seamlessly, and their employment will continue under the CIC, he said.

No evidence to support allegations of a “toxic workplace” at SDTC

The first review of SDTC initiated by ISED, conducted by accounting firm Raymond Chabot Grant Thornton, detailed conflict-of-interest policy breaches and lax record keeping. It questioned $38 million in pandemic-relief payments to all SDTC companies in 2021 and 2022, including those in which directors had interests.

The other review initiated by ISED was by McCarthy Tétrault LLP, which the Minister of Justice and the Attorney General of Canada asked to conduct a fact-finding review of alleged breaches of labour and employment practices and policies at SDTC.

In its report, which ISED has now released, McCarty Tétrault found no evidence to support allegations of a “toxic workplace” at SDTC. Among the findings:

• Current or former executives did not engage in the type of repetitive, vexatious or major incident conduct that would constitute harassment, bullying or workplace violence under applicable standards. The assertion that there was a “toxic workplace” was a minority view among participants and appears to be largely attributable to animosity towards leadership style and disagreement with management decisions, organizational changes and conflict of interest issues.
• Decisions about restructuring or terminations were not made using discriminatory criteria, nor were they arbitrary and lacking reasonable business justification.
• Severance packages were within market expectations and NDA (non-disclosure agreement) terms and use were in keeping with customary employment practices.
• Turnover in HR (human resources) was significant, and reliance on staffing agencies to fill HR roles caused many participants to feel under-served and under-supported by HR. “It is fair for some employees to have felt that HR was not a priority of SDTC leadership. The facts do not support, however, a finding that HR was deliberately ignored by SDTC or was an instrument manipulated by leadership.” In the two instances where a formal complaint was made, reasonable process was followed, and the complaints were appropriately addressed. HR policies were not lacking or deficient, and a confidential complaint procedure was available to employees. “The facts do not support a finding that employee turnover was related to a so-called ‘toxic workplace,’ or that turnover was unusually high.”
• Voluntary turnover was not out of line with benchmarks, and for the most part, employees voluntarily left SDTC to pursue other opportunities in the industry (experiential and/or promotional), and not because of a negative work experience. The flat organizational structure left little room for advancement.
• Key leadership positions were, in some cases, staffed with individuals who had personal/professional connections with executives. All had the requisite qualifications and experience for the roles. While it may not be contrary to policy or law, and not unusual in a niche inter-connected industry, this practice contributed to perceptions of favouritism, bias, and a lack of promotional opportunity and management support.

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