Allegations of mismanagement beset Canada’s main clean tech funding organization
July 26, 2023
"Incompetent” leadership at Canada’s main federally supported funder of clean technology has resulted in conflict of interest and financial mismanagement, says a former employee of Sustainable Development Technology Canada (SDTC).
But SDTC, which has completed an internal investigation into complaints by a group of former employees, denies the allegations.
Innovation, Science and Economic Development (ISED) which has a funding contribution agreement with SDTC and oversees its operation, launched its own investigation of SDTC earlier this year after the former employees complained. None of the allegations has been proven.
ISED hired Ottawa-based accounting firm Raymond Chabot Grant Thornton to determine if any of the allegations have merit and if further action is required.
Aman Chahal, who worked at SDTC as a project manager from January 2017 to October 2018, told Research Money: “I believe SDTC’s management is effectively inefficient and incompetent.”
“Nothing about working with, in or around this organization gives me the confidence that the individuals in management would admit to problems if they were found,” said Chahal, an engineer by training who is currently an industrial professor of innovation and entrepreneurship at the University of Alberta.
Diana Menzies, a spokesperson for SDTC, said in an email to Research Money: “There is no evidence to substantiate these allegations. We believe them to be unfounded.”
However, Menzies said SDTC recognizes the importance of taking the time to complete ISED’s “fact-finding exercise and will continue to fully cooperate.”
SDTC has provided more than $1.5 billion to hundreds of clean tech companies since a Liberal government created the not-for-profit foundation in 2001 through a Special Act of Parliament.
SDTC is a key organization supporting clean tech companies in the federal government’s drive to achieve net-zero greenhouse gas emissions. Sectors receiving SDTC funding include: energy utilization, transportation, energy exploration and production, power generation, waste management, agriculture, and forestry.
Chahal is one of a group of former SDTC employees who allege that some projects put forward by companies for SDTC funding got preferential treatment by the organization's management and board.
The group also contends SDTC has had a “toxic” culture and workplace environment during the tenure of Leah Lawrence, who has been SDTC’s president and CEO since 2015.
Chahal said staff turnover has been very high since 2015, with SDTC losing many of its most experienced and knowledgeable people, and staff being overworked while not being provided with the right tools to do their jobs.
There is scant representation from racialized groups on SDTC’s 15-member board and five-member executive team, she added, and managers do not listen to complaints or value staff suggestions for improvement.
Some reviews of SDTC from former employees on the Glass Door website are scathing. “Executives put constant pressure on workers to disburse money with little regard for compliance or risk management,” said a January 16, 2023 comment from an employee who worked less than a year at SDTC. “The CEO and the board of directors should be investigated by the government,” said an April 26, 2022 comment from a current SDTC employee of more than five years.
“Unhappy place full of unhappy people unable to keep up with change for change’s sake, badly communicated, badly managed. Staff turnover is horrific,” said a June 10, 2022 comment from a former SDTC employee of more than three years. “A toxic, soulless organization that is completely void of qualified leadership, strategic direction, honest communication and often times, respect,” said a January 28, 2021 comment from a former SDTC employee.
But Menzies insisted that the key to SDTC’s success is its people, and the agency has built “a highly skilled team who are driven by our mission.” SDTC actively seeks feedback from current and departing employees through regular engagement surveys, “pulse checks” and exit interviews, she said.
“Current employees have reported a positive culture, supportive managers, flexible work environment and rewarding work. Many former employees continue to be ambassadors for SDTC working within the cleantech ecosystem,” Menzies said.
Conflict of interest and financial mismanagement allegations
The current funding contribution agreement between SDTC and ISED stipulates that SDTC “should assess the proposals received and provide funding in accordance with the terms of this Agreement to Ultimate Recipients for Eligible Projects which, in the opinion of the [SDTC] Board, have the greatest merit.”
But Chahal and other former SDTC employees point to examples where companies received significant SDTC funding even after independent expert reviewers expressed doubts about the merit of the proposed projects.
Research Money has reviewed SDTC internal documents obtained by the group of complainants that show independent reviewers initially gave one project a “weak recommendation” and rejected another project.
One project was submitted in December 2021 by Vancouver-based ag-tech company SemiosBio Technologies Inc., for crop-management technology using in-crop wireless networks coupled with remote sensors. SemiosBio had previously received $9.9 million from SDTC in 2018.
Chris Wormald, founder and principal at tech investment firm ViraMito Inc. and one of the third-party reviewers that SDTC utilizes, evaluated SemiosBio’s proposed project. Wormald said in his review that the company did not need SDTC funding for the project, because it was generating its own revenue and making acquisitions, according to the SDTC internal documents. Nevertheless, he gave SemiosBio’s project a “weak recommend.”
SemiosBios subsequently received $17 million in SDTC funding in 2022 — among the highest amounts of funding awarded for SDTC-supported projects. Wormald declined Research Money’s request to comment.
Former SDTC employees contend that Canada’s clean tech ecosystem is becoming like an exclusive club of the same people at different clean tech and innovation organizations.
Wormald, a former vice-president of BlackBerry, is a co-founder of the federally funded Innovation Asset Collective (IAC). IAC’s board chair is Jim Balsillie, former chair and co-CEO of Research in Motion (BlackBerry). Balsillie was chair of SDTC’s board when current CEO Leah Lawrence was hired. Lawrence is a board member of IAC, as is Wormald.
Complainants cite another proposed project from April 2022, by Kitchener, Ont.-based Miovision Technologies, providing AI-based traffic data collection and management solutions to cities.
According to the SDTC internal documents, Dr. Lijun Sun, PhD, an associate professor of civil engineering at McGill University, reviewed Miovision’s application for SDTC funding to develop hardware and an algorithm to optimize traffic network signals.
Sun, whose research focuses on urban computing and smart transportation, said in his review that while the technology had merit, Miovision’s proposal was vague and not well supported by documents submitted by the company. Sun recommended that SDTC reject the application.
However, several days later he reviewed a shorter version of Miovision’s proposal and changed his recommendation to a “weak recommend.” Sun did not respond to Research Money’s request for comment.
Miovision subsequently received about $16.6 million in SDTC funding in 2022 — again among the highest amounts of funding awarded for SDTC-supported projects. Wormald was a Miovision board member at the time.
Regarding the two cases cited by complainants, Menzies responded that in addition to the evaluation by SDTC staff, SDTC uses expert reviewers to provide third-party technical and business expertise to evaluate every application for funding as part of SDTC’s due diligence process.
Weak recommendations from reviewers “are not uncommon and help to identify and mitigate risk,” she said. “The reviewer evaluation is then integrated into the proposed project scope to strengthen the project and improve the likelihood of a successful project outcome.”
Wormald was not involved in any way with the SDTC funding provided to Miovision Technologies, Menzies said.
Complainants cite potential conflict of interest at SDTC’s board
Chahal pointed to another potential conflict of interest, involving $1.6 million in SDTC funding provided to Toronto-based Hydrostor Inc. in 2021. At the time, the company had partnered with another company, NRStor Inc., to build a compressed air energy storage facility in Ontario.
Hydrostor received the SDTC funding when Annette Verschuren was the chair of the board at SDTC, a position she has held since June 2019. As board chair, Verschuren serves as a non-voting member of SDTC’s Project Review Committee, which decides on which projects SDTC funds. This committee currently consists of seven voting members of SDTC’s board, in addition to non-voting members Verschuren and CEO Lawrence.
Verschuren also is the CEO of NRStor, Hydrostor’s partner in the energy storage project. NRStor previously received SDTC funding of $2.1 million in 2017.
Verschuren proactively disclosed her conflict during the vetting process for selecting the chair of SDTC's board, and again formally disclosed the conflict upon her appointment as SDTC chair, Menzies said in an email to Research Money. “At that point, she wrote to the Office of the Ethics Commissioner to seek advice on how to proceed and was advised by the commissioner’s office to follow SDTC’s Ethics Code.”
Verschuren did not participate in any discussions related to Hydrostor, Menzies added. “As per SDTC’s conflict of interest practices, she declared a conflict of interest and recused herself from all discussions related to this project funding approval.”
The Canada Infrastructure Bank, a federal Crown corporation, announced in 2021 an investment of up to $170 million in a separate energy storage project, the $800-million Oneida Energy Storage project, a partnership between NRStor, Northland Power Inc., Six Nations of the Grand River Development Corporation, and Aecon Group Inc.
SDTC in 2006 had developed and reviewed annually conflict-of-interest polices for its board of directors and staff. However, these policies were not posted on SDTC’s website, as stipulated by SDTC’s contribution agreement with ISED, when Research Money looked for them.
Menzies explained that SDTC revised its website in 2020 and migrated data to the new site and, as a result, the conflict-of-interest policies were “incorrectly omitted from the website. SDTC has since corrected that error and the policies now appear on its website.”
SDTC is funding multi-million-dollar companies
SDTC’s contribution agreement with ISED states that the goal of SDTC funding is to fund and support projects at the “pre-commercial and demonstration stages.” However, SemiosBios and Miovision Technologies are multi-million-dollar commercial companies generating revenues and profits.
“From a mandate standpoint, funding SemiosBio and Miovision at this advanced stage, at the amount they were funded, is outside the scope of SDTC,” Chahal said "These investments, if they were needed by the companies, should have come through the Strategic Innovation Fund (SIF). SIF is designed for large investments to help in the commercialization of strategically important companies."
Miovision received $16.6 million in SDTC funding in 2022 after raising $165 million in venture capital over four rounds and generating just under $80 million in revenue in 2022 and acquiring another company. SemioBios received $17 million in SDTC funding in 2022 after raising more than $225 million in venture capital and acquiring three companies.
Menzies responded that SDTC’s funding agreement with ISED has always enabled SDTC to fund companies “to the point of significant profit,” which she said would occur if a company distributed dividends to their shareholders during an SDTC-funded project.
To address a gap in Canada’s funding ecosystem, SDTC’s funding envelope was broadened to include scale-up companies in 2020, as part of SDTC’s most recent recapitalization, Menzies said.
“Our scale-up funding stream is designed to support small-to-medium size companies who have begun to generate annual revenues yet still need to invest in innovation, research and development in technology advancements that are pre-commercial,” she said. “These on-going innovations are important for companies as they secure a leadership position in the market and fully commercialize their businesses.”
SDTC also has a seed fund that provides up to $100,000 to eligible clean tech companies, However, only companies that have been recommended by one of more than 90 accelerators that SDTC has partnered with across Canada can apply for SDTC seed funding.
This requirement discriminates against clean tech companies with innovative technology, which could benefit from seed funding, according to the group of former SDTC employees.
“There is no independent ombudsman to review applicants for any funds to understand if there was bias at play, no ability to appeal a decision, no double-blind intake,” Chahal said.
But Menzies responded that clean tech companies are free to apply to one of SDTC’s other two funding streams: the startup fund (funding ranges from $2 million to $5 million) or the scale-up fund (funding of up to $20 million).
Targets for performance-based compensation questioned
The group of former SDTC employees does not allege any wrongdoing by companies funded by SDTC. They do maintain SDTC has recently significantly ramped up funding for companies because the organization has a performance-based compensation system whose corporate targets include allocating a certain level of funding annually and funding a certain number of projects every year.
SDTC’s current corporate plan lists performance indicator #1 as: “Total funding allocated to sustainable development projects,” and the performance target is: “Approve $190 million.”
Performance indicator #2 is: “Number of new clean technology projects approved for funding,” and the performance target is: “At least 100 new projects and major modifications to existing projects are approved each year.”
In addition to SDTC’s CEO and vice-presidents, the organizations directors, managers and project leads all are eligible for performance-based compensation. For example, as CEO, Leah Lawrence’s annual base salary is between $311,000 to $421,000. She is also eligible for up to $115,000 per year as “additional performance-based compensation.”
“SDTC executives are incentivized to push money out the door,” Chahal said. “This is likely a result of how fast Canada has to show progress on its COP 21 [climate] commitments so they can show they are spending money on mitigating technologies.”
Menzies responded that “as is the case for many third-party organizations and Crown corporations, performance-based compensation is part of every SDTC employee’s total compensation package.”
Performance-based compensation is evaluated based on the organization’s ability to meet a number of performance metrics outlined in SDTC’s corporate plan, she said. Several other performance targets besides annual funding and number of new projects are listed in the corporate plan.
SDTC’s ramped-up spending criticized
SDTC’s contribution agreement with ISED also stipulates that SDTC may fund, “on average across its portfolio of Funded Projects, up to 33 per cent of Eligible Project Costs, and, subject to section 7.6 [which requires a written request to the Minister to increase the funding for a project], never more than 50 per cent of Eligible Project Costs of any given Eligible Project.”
Both SDTC and ISED told Research Money that SDTC has adhered to the requirement to not fund more than 50 per cent of eligible project costs over the life of a project.
However, Chahal said SDTC is now routinely funding 40 per cent of a project’s eligible costs across the organization’s portfolio of projects, rather than the 33 per cent stipulated in the contribution agreement with ISED. SDTC has ramped up its funding so it can meet its corporate target for the amount of allocated funding and number of projects funded annually, thereby increasing performance-based compensation paid to executive and senior staff, she alleged.
Annual funding for SDTC is set to double to $318 million by 2025-26 from just over $157 million last year, according to SDTC’s contribution agreement with the government. SDTC-supported companies have reduced nearly 23 million tonnes of greenhouse gas emissions (carbon dioxide equivalent), according to SDTC.
In the broader picture, however, Ottawa failed to spend $7.7 billion of the $15 billion it pledged in federal budgets on a host of climate change initiatives since 2016, according to an analysis by the Toronto Star. Meanwhile, Canada’s emissions have continued to increase during the past three decades, according to a 2021 report by the Office of the Auditor General of Canada.
With the average global temperature increase expected to exceed 1.5 degrees Celsius within the next five years, it is time for Canada to take meaningful action on climate change, Chahal said. “Now it is time that we stop funding an organization [SDTC] that is developing technologies and started looking at creating something that funds reductions in greenhouse gas emissions that are measurable.”
She added she is also worried that the government will repeat the problems at SDTC, including its performance-based compensation system, in the design and operation of the new Canada Innovation Corporation (CIC), which is to be a business-facing organization focused on technology commercialization.
CIC was initially established as a subsidiary of the Canada Development Investment Corporation (CDEV), to facilitate recruitment of senior leadership. So CDEV’s board of directors will select the CIC board of directors and its CEO, in consultation with the federal finance minister.
ISED evaluations of SDTC’s performance and governance yet to be released
Chahal said the Government of Canada is ultimately responsible for the problems at SDTC, which reports to ISED’s minister. ISED had initially expected to wrap up its investigation of complaints by former SDTC employees by mid-May.
However, “The fact-finding exercise requires that all of the relevant facts are obtained and reviewed as they relate to each allegation,” ISED said in an email to Research Money.
“Raymond Chabot Grant Thornton (RCGT) is completing its review of all relevant documents and conducting interviews with implicated parties prior to reporting its findings to ISED. ISED is providing RCGT the required time to fully complete its work and is expecting a report in the coming weeks.”
Chahal said she has not been contacted by either ISED or accounting firm Raymond Chabot Grant Thornton to provide information to the investigation.
ISED’s contribution agreement with SDTC requires that a separate evaluation of SDTC be completed by ISED’s minister “no later than March 31, 2023.”
This evaluation is conducted to examine SDTC’s program relevance (need for funding), performance and efficiency, in accordance with the Treasury Board’s Policy on Results, ISED spokesperson Hans Parmar said in an email.
Minister François-Phillipe Champagne has completed his evaluation, but it has yet to conclude the Treasury Board’s approval process, which includes approval by the Treasury Board’s deputy minister and the evaluation provided to the Treasury Board Secretariat for its records, Parmar said.
Champagne’s evaluation is separate from an audit by ISED’s audit and evaluation arm that examines SDTC’s governance, risk management and internal controls. This audit is supposed to be done every five years, but hasn’t yet been approved by ISED internal governance, Parmar noted.
ISED’s audit and evaluation arm’s 2018 audit of SDTC found that “SDTC has a governance structure in place which supports the effective delivery of the SD Tech Fund.” Also, “SDTC’s due diligence process is valued by investors, who appreciate SDTC’s process for evaluating technical and project management competence.”
Approximately three-quarters of all projects that received SDTC funding have made progress towards demonstration or have successfully demonstrated, according to the audit. Just over one-third of SDTC funding recipients reached commercialization, while one-third of recipients failed to commercialize.
“The SD Tech Fund plays an important role in the government's mission to achieve its GHG emission goals and enable Canadian firms to compete globally in the cleantech space,” according to the audit. “Available data and primary research for this evaluation indicates that the SD Tech Fund has helped create environmental and economic benefits for the Canadian economy.”