OTTAWA—It was once the driver of Canada’s nascent clean-technology industry, supported by Liberal and Conservatives alike.
Publicly funded but arms-length from government bureaucracy since 2001, Sustainable Development Technology Canada (SDTC) was a lifeline to entrepreneurs desperate to find money for their clean-tech innovations.
That was until a damaging mismanagement scandal rocked the agency and the House of Commons last year, forcing the Trudeau government on its heels and prompting it to launch a drastic overhaul of the fund.
Now, in the backdrop of the crisis, industry insiders worry the growth of a sector critical to Canada’s transition to a green economy is under threat.
“There are tons of jobs at stake, tons of fundamental business opportunities,” said Peter McArthur, chair of the Ontario Clean Technology Industry Association.
“That brilliant idea that’s coming out of a lab in Hamilton, in Edmonton, in Sherbrooke, is at risk of not seeing the light of day without this sort of funding. Maybe that solution is going to reduce the likelihood of those forest fires in Alberta and B.C., maybe it’s going to … help us go in a different direction regarding the flooding in Ontario and Quebec this year, or the heat that’s been so punitive to so many people.”
“This gives us a chance.”
Here’s the story of how a once lauded federal fund became a punching bag for Justin Trudeau’s political rivals, and the uncertainty it faces going forward.
What is SDTC?
Even while acknowledging it’s a cliché, industry experts who spoke to the Star say Canada has always punched above its weight when it comes to clean tech or products that help reduce the negative environmental impacts of using natural resources.
As of 2022, more than 2,000 companies contributed $37 billion to Canada’s GDP, good enough for the country to claim 13 of the top 100 clean-tech companies in the world in the latest rankings from the Global Cleantech Innovation Index, only second behind the U.S.
SDTC was integral to that success, McArthur said. Launched in 2001 by the Jean Chrétien government, it was a public fund led by experts without political interference that identified the best early stage startups in an industry that required heavy capital investment.
It was “totally necessary, and it didn’t exist anywhere else in the world,” said Jane Kearns, the co-founder of the Canada Cleantech Alliance and a partner at Evok Innovations, a clean energy venture capital firm. “It set Canada apart.”
By 2022, SDTC had provided more than $13 billion in funding to clean-tech projects, leading to billions in revenues and creating at least 25,000 Canadian jobs. Companies that received SDTC funding were seen as most credible by other organizations, said Lynn Côté, the former clean-tech lead at Export Development Canada.
Successive governments of different stripes saw its value and in 2021, the federal government gave it an injection of $1 billion to spend over five years.
How did scandal shut down SDTC’s funding?
Behind the scenes, concerns about rampant financial and workplace mismanagement were brought to the government in early 2023 and quickly blew things up.
By October 2023, a third-party report spurred by whistleblower complaints raised enough red flags that Industry Minister François-Philippe Champagne froze funding and said SDTC’s governance model would have to be reviewed. The embattled president and the chair of the board would both resign weeks later.
The consequences for business were devastating, said McArthur. In a survey of members by the Canada Cleantech Alliance, two-thirds of companies said they had their businesses interrupted and many more revealed they were unable to find alternative funding. To this day, McArthur told the Star, the money has yet to start flowing again.
“It has resulted in some layoffs and people having to sell off portions of their business, at the same time that our American cousins have turned up their focus on this sector dramatically through the Inflation Reduction Act,” he said. “It’s been a very tough situation, so companies are being lured to the United States.”
An auditor general probe concluded in June would later find tens of millions in funding went to ineligible projects, conflict of interest rules were violated in funding decisions, and requirements in the law governing the foundation were not met. A long list of recommendations in the report were accepted, and misspent funds would be recouped.
Conservative MPs dubbed it the “green slush fund,” arguing it was wasteful, corrupt, potentially criminal, and pursued parliamentary hearings on what went wrong. One employee at the company told the Star that’s when things “went off the rails.”
Champagne took a drastic measure, announcing SDTC would be shut down and transitioned to the National Research Council of Canada, which reports directly to the minister rather than operates at arms-length. Eventually, Champagne said, the fund would move to the Canada Innovation Corporation, a crown corporation first promised by the Trudeau government in 2021. Its establishment, however, is not expected until after the next election.
Even Canada’s auditor general Karen Hogan told MPs it was the first time she was aware of a critical report leading to such measures.
Later, a Tory motion to compel the auditor general to cough up extensive records obtained during her investigation to the RCMP succeeded, despite protests from Liberal MPs and Hogan, who argued it would have “unintended consequences” on her access to public servants and agencies.
Over the summer, the Mounties also quietly raised concerns about the motion, with commissioner Mike Duheme declaring in a letter to the House law clerk obtained by the Star that it was “highly unlikely” information received due to the motion could be used in an RCMP investigation. The RCMP had not yet found any criminal wrongdoing in the available reports but would continue its review, Duheme added.
Can clean tech industries survive?
Now, clean-tech industry experts worry a history of consistent funding is at risk.
Champagne’s response addressed the governance problems head on, but it’s left too much uncertainty and its ramifications on the industry that relied on SDTC could be severe, said several sources who spoke to the Star. The fund’s success was attributed to fast, bold decision-making typical only of the private sector. Now, unprecedented political spotlight could lead to slower, more risk-averse decisions that fall short of innovators’ expectations, some fear.
“If the money is in a government department, I’d be worried about political interference,” said Jonathan Rhone, a serial clean tech investor who has received SDTC funding in the past. “Honestly, I worry that the process of securing funding becomes overly onerous and costly, and takes too long and (is) bureaucratic.”
That’s why moving the fund under direct government oversight was a “real overreach” and a “political overreaction,” said Stewart Elgie, an environmental law and policy professor at the University of Ottawa. In a statement, a spokesperson for SDTC said funding should resume in the coming weeks and a “seamless transition that meets everyone’s needs” was in the works.
“Yes, it needs to be publicly accountable, it needs to show that it’s delivering results … it needed to have its governance tightened up,” Elgie said. “But you didn’t need to strangle SDTC to solve the governance problem.”
“If you get a speeding ticket, well, then you’re a little bit cautious,” Côté said. “But money hates uncertainty.”
Those fears are compounded by questions about how a potential Conservative government whose leader has claimed his climate plan would centre on “technology, not taxes” would approach funding.
“When Pierre Poilievre was a cabinet minister in (the Stephen Harper) government, they poured hundreds of millions of dollars into what he’s now calling a green slush fund,” Elgie said. “And now, to call that a failure that should be killed is really, shallow opportunism of something that’s been a massive Canadian economic success story.”
Conservative ethics critic Michael Barrett said in a statement the fund is “nothing but a fraud” that has been “used solely to benefit Trudeau’s friends and Liberal insiders.”
Spokespeople for Innovation, Science and Economic Development Canada and the NRC said the federal government remains committed to homegrown clean-tech funding. The NRC, they said, has a history of supporting clean-tech innovation with a dedicated team that has doled out more than $400 million in clean-tech funding since 2020, and the incoming changes will “enhance accountability, transparency, and public confidence.”
To Rhone, whether Ottawa bureaucrats find a way to continue funding clean-tech startup success is a choice in the type of country we want to be.
“It’s important for us to realize that Canada has a choice to make about whether we’re going to be a supplier of clean-tech solutions into this, you know, trillion dollar global clean-tech market, or we’re going to be a buyer,” he said. “How do we create the conditions for success?”