Industry Committee on Dec. 11th, 2023

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Chair. Thank you, gentlemen.

Mr. Kennedy, obviously your career is quite distinguished within the department and so forth.

I've heard much about the contribution agreements and the contribution agreements that are signed. Can you kind of go over what one could anticipate with the contribution agreements and how they've been strengthened?

[Simon Kennedy]

Just by way of illustration, the kinds of things we wanted to see strengthened at SDTC included updating the corporations code of practice and conflict of interest policy; updating the project approval process to basically sharpen up and ensure that the various streams of funding the organization puts out are fully aligned with the terms and conditions of the contribution agreement; strengthening the documentation around project recommendations and approvals; and reviewing and updating the financial management processes and so on.

Those give you an illustration of some things that we directed the organization to do and that we would see updated in the contribution agreement to the extent that was required.

There may be some areas where the updating would be in policies and procedures. In other words, the contribution agreement calls to have a policy in place, and we want to see the policy strengthened. There would be other cases where the change might be made in the contribution agreement itself.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

On the contribution agreement, just so I understand it as well, SDTC is a fund that makes investments in clean technologies. The contribution agreements would govern the umbrella or the scope of each of those investments and the agreement between the government and SDTC.

[Simon Kennedy]

The way to think of this would be that SDTC is a.... There are government-appointed members to the board, but it's an independent organization with a board, and it exists sort of independent of the government.

The contribution agreement is a contractual arrangement in which we've agreed to give SDTC money to do certain sorts of things, and they've agreed to accept it and to actually execute the contract to the government's satisfaction. The contribution agreement is a contract with SDTC, effectively.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

This type of agreement would be in place for other entities that have the same type of agreement or relationship with the government.

[Simon Kennedy]

Well, ISED manages hundreds of such agreements, going back many decades over successive governments. This is a particular one with this organization, but contribution agreements are a pretty typical tool that are used by government departments to enter into agreements with third parties.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Okay.

I take it the governance within the contribution agreement with SDTC has been strengthened or is being strengthened. The governance side of it is being strengthened.

[Simon Kennedy]

There may be some aspects of governance.... I apologize. I want to be as forthright as possible. Maybe we can come back with something in writing, if we want more precision. The governance of SDTC, from a board and corporate point of view, is actually established in law. There's a piece of legislation that Parliament has passed. In terms of small-g governance, like the policies and procedures, the various committees, some of that may wind up being strengthened in the contribution agreement, but it wouldn't necessarily touch the board and the higher-level structures of how the organization operates.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Anyone can answer this question—maybe Mr. Noseworthy—in terms of the clean technology space and how important SDTC has been in Canada for that in terms of investing in early stage or venture capital, or whatever term you want to use, in entities in Canada, in companies for clean technology.

[Andrew Noseworthy]

SDTC has been the government's principal connection to early-stage companies. You'll find that many of the companies that get entry-stage funding from SDTC go on to grow to successful companies and in fact obtain funding later on, as part of their process of maturation, from programs like the strategic innovation fund, the Business Development Bank of Canada, EDC and other programs.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Are most of the investments done in SDTC.... I'm just thinking about the capital structure of a firm. Where do they place in the capital structure? Are they straight loans, or is it an equity investment? How is it treated?

[Andrew Noseworthy]

If my memory serves, they are grants to the individual companies. In fact, I'm sorry. I'm technically correct: They are forgivable loans.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Okay.

Thank you, gentlemen.

[The Chair, Liberal, Joël Lightbound]

We'll turn to Monsieur Lemire.

Go ahead, Mr. Lemire.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Mr. Kennedy, here is part of the statement issued by SDTC following the Minister’s statement regarding the Raymond Chabot Grant Thorton report:The SDTC Board of Directors and leadership team are carefully reviewing the report and are taking action to implement the recommendations as quickly as possible to minimize disruption to Canada’s sustainable innovation ecosystem.

Do you know what actions have been taken so far?

[Simon Kennedy]

My team and I have had several meetings with the SDTC management team and the former Chair of the Board to discuss progress towards the action plan. This plan, which these people submitted to us in December, a few days ago, is currently being analyzed. Our goal is to complete this work in the coming days.

The SDTC management team has already put forward numerous measures and submitted the results to the Department, and they want to know if the Minister is happy to see that what was required of their organization has been completed.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Are you considering recommending more structural changes or governance reforms within SDTC to avoid such problems in the future? There was agreement that the COVID environment was exceptional for governance. We wanted to maintain assets and intellectual property related to new technologies on Quebec and Canadian soil.

What would you do differently if another exceptional situation occurred? What lessons did you learn?

[Simon Kennedy]

I would like to make a few comments. One of the lessons we have learned, I think, is that in the years to come, even if there is a crisis, people may still ask questions about what has been done. It is important to maintain proper processes. That is my explanation. Everything must be well documented, and reliable data must show that judgment was exercised and that the processes were in place.

In my opinion, the exercise conducted by Raymond Chabot Grant Thorton and the action plan demonstrate that there were weaknesses and that they needed to be addressed. It is as simple as that, in my opinion.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you very much.

[The Chair, Liberal, Joël Lightbound]

Thank you.

Mr. MacGregor, the floor is yours.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Thank you, Chair.

Mr. Kennedy, you and your officials here allow us, as a committee, to get it from the top of the pyramid from ISED. You do have great responsibilities in your department. I understand, with all the reviews that are going on, there is going to be a bit of a waiting period.

For you personally, as a deputy minister, what is your ultimate goal from this whole experience? Do you want to see restored public trust in this issue? Do you want to see better understood rules and processes? Are you hoping there will be better confidence in the companies that this venture serves? What do you think your ultimate goal is going to be from this whole experience?

[Simon Kennedy]

Certainly, a core goal I have as a public servant serving the government is to try to faithfully execute the requests of the minister. Those are to get to the facts, to get to the bottom of things, as he has said; to support the government as we may be called upon to follow up on the results of the review of McCarthy Tétrault and then faithfully execute any changes to the contribution agreement and the management response and action plan; and to support any response that is needed from ISED to the Auditor General's findings when they come out, presumably later in the year.

Those will be the first things: to make sure we're supporting the government in its effort to get to the bottom of things and to take the measures necessary to restore public confidence.

I would just say, more generally, as a senior public servant, that SDTC is supported by ISED through this contribution agreement. This is an area where some weaknesses have been shown. Where it's obviously a file of some public profile, it would be seen to be exercising diligence in restoring public confidence in the use of public money. As well, to the extent that there are weaknesses found, they would be corrected swiftly. I would say it's no more complicated than that.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

This concludes the time.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Mr. Chair, can I ask a question on a point of order?

The courtesy in most committees, since we were 10 minutes late starting because of the vote, is that we extend everything by 10 minutes. I'm wondering, because we still have more questions for our officials, if we could complete the full hour with officials and do the hour with—

[The Chair, Liberal, Joël Lightbound]

Mr. Perkins, as you are aware, we've had discussions with the clerk, and we have a hard stop at nine. If we take more time now, then we have less time for the second hour. I believe we discussed before the start of this committee that we would have more time with the second witness for the second hour.

It's up to the committee, really, on that point, but I'll stick to the agreement that we had before we started, Mr. Perkins, and we'll suspend.

I want to thank Mr. Davies, Mr. Kennedy and Mr. Noseworthy. Thanks for being with us tonight.

We will suspend, colleagues, until eight, and we will start at eight sharp.

Thank you very much. The meeting is suspended.