SDTC to be folded into federal agency after Auditor-General finds ‘significant lapses’ in governance, conflict policies

The directors of Ottawa’s main funding arm for green technology are resigning and the government will fold it into another agency after the Auditor-General detailed a series of conflict-of-interest breaches and ineligible funding.

The operations of Sustainable Development Technology Canada, 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, Industry Minister François-Philippe Champagne said on Tuesday. It has been a stand-alone agency since 2001.

“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.

The organization will be supervised by a board made up of three directors who will be appointed for one-year terms and led by new chair Paul Boothe. SDTC’s staff will be offered employment at the restructured organization, the minister said.

Mr. Champagne announced the changes after Auditor-General Karen Hogan issued her report of an audit of SDTC that concluded it 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 the criteria set out in the agreement that governs how it distributes public money, she reported.

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

Her audit – and the agency’s transformation to a part of the NRC – follows an investigation of SDTC last year that was triggered by whistleblowers who complained of conflicts, financial mismanagement and poor human-resources practices.

Ms. Hogan’s conclusions largely support allegations by the whistleblowers and 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 the conclusions of the Auditor-General.

“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 were not followed. That represented $76-million awarded through the six-year audit period that ended in 2023.

The Auditor-General examined 58 approvals for eligibility under the agency’s contribution agreement with the federal government 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, when the report from ISED’s investigation showed evidence of conflict policy breaches and inappropriate funding.

This freeze has been highly disruptive to the Canadian cleantech industry that relies on the grants. Startups that were near final approval when the minister imposed the freeze were left in limbo.

The minister said on Tuesday he is lifting the suspension effective immediately.

The first investigation, conducted by accounting firm Raymond Chabot Grant Thornton on behalf of ISED, detailed conflict 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 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.

She said 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.

Among those directors was chair Annette Verschuren. She was, and remains, CEO of energy storage company NRStor Inc., one of the companies that received the payments. Ms. Verschuren has said the relief was directed at all companies funded by SDTC, and it was deemed an “operational” issue. She voted in favour on the advice of legal counsel, she has said.

She resigned her position late last year as controversy mounted, as did CEO Leah Lawrence, who has since testified to a commons committee that she had been stymied in her attempts to improve governance at the agency.

Both leaders had told the committee that the initial investigation report was wrong in many of its conclusions.

In a statement, SDTC said it accepts the findings of the Auditor-General’s audit. Spokesperson Janemary Banigan said the agency has taken steps to strengthen its conflict-of-interest policies and introduced clearer guidelines for the responsibilities of directors.

In addition, she said SDTC acknowledged the findings related to project eligibility were based on the scope of documents considered by the auditors. “We believe that the in-depth depth due diligence by staff is robust and we will continue to work to ensure best practices are in place.” Ms. Banigan said.

Editor’s note: A previous version of this story said managers and directors will resign from SDTC. Just the directors will resign.