- Cleantech companies are leaving the country because of attractive tax incentives and policies that are not offered in Canada.
- The common denominator across industries in Canada that are transitioning to a green economy is data and digital technologies, which are playing an increasing role in cleantech solutions.
- The biggest threat to the cleantech industry is the propensity of Canadian sectors, stakeholders and regions to operate within silos—collaboration is the solution.
The Government of Canada must move into action immediately to drive local adoption of transformative cleantech technology and ensure cleantech companies stay in Canada as they scale. This could include a Green New Deal for Canada as well as more immediate mechanisms such as a flow-through tax credit program, which incentivizes investors to invest early, while supporting the common good. Another useful measure is a government risk portfolio to backstop industry partners and minimize the risk to companies.
What does the future of cleantech look like now considering COVID-19?
As the COVID-19 crisis hit, many cleantech companies reached out to tell us about the devastating impact it was having on their business – many of them rely on major industry events for investor introductions and sales. Deal flow and financial opportunities were getting withdrawn, putting many into a vulnerable, cash-strapped position.
The cleantech ecosystem in Canada responded, including Foresight. We wrote and published articles, conducted surveys, and worked with government partners to get the message across that we could not lose the momentum that had been building in Canadian cleantech leading up to the crisis. We also maintained that cleantech is the future of our economy and needs to be prioritized in all restart and recovery conversations.
While the startups were hard hit, we see a bright future for Canada and Canadian cleantech. The basic economics and value proposition of these companies remain strong. The pressures from buys and partners only increases as we look to address global climate change coming out of this health and economic crisis.
It’s not about returning to ‘normal’. We see this recovery as a unique opportunity to pivot into a more sustainable economy. Many of our companies are working on solutions that support this transformation to a low carbon economy, which we see as the biggest transformation in business since the industrial revolution, while at the same time driving global competitiveness in the mid-long term.
“It’s not about returning to ‘normal’. We see this recovery as a unique opportunity to pivot into a more sustainable economy.”
In the immediate term, to support recovery from the pandemic, we are focused on resilience. We have launched a “Restart and Resilience” series, free for all Canadian cleantech SMEs in partnership with National Research Council Industrial Research Assistance Program (NRC-IRAP), to support these companies as they restart their operations and adjust to the new market realities.
In the longer run, our vision for cleantech is bold – it has become clearer and more energized than ever. We now know that to support a crisis, individuals and organizations globally can work together and change habits to beat a crisis. In this case, the climate crisis also has the potential for huge economic benefits. The global cleantech industry was estimated to surpass $2.5 trillion by 2022. I don’t think that will change too much due to COVID-19 – the economics for cleantech are just too strong, and many investors we’ve talked to have not cancelled their investment plans, they’ve only delayed them temporarily as the health crisis plays out.
How would you describe the cleantech industry in Canada today? What are its strengths and weaknesses?
Foresight has been operating in Canada for over six years— living and breathing everything “cleantech.” We believe the country is well-positioned to become a global leader in the industry.
Canada has many early stage companies that are solving big problems. The government is also supporting the sector in research and development (R&D) projects and the scaling of early stage companies. There have been a number of later stage companies securing hundreds of millions in financing—which they need to become globally competitive.
Although Canada is well-positioned to lead in cleantech, it faces a challenge in the gap between technology readiness levels (TRLs) 7 and 9, and the ability of companies to cross that chasm. Businesses are successful in getting to prototyping, which is TRL 7, and are about to embark on commercialization, TRL 9, but they fall short. They either run out of money or lack competency in their talent pool to make the transition. If they fail to cross this chasm, they will either leave to find funding elsewhere, or the business will collapse or lose out to a competitor. To become a world leader, Canada must support its companies to bridge that gap. This is our focus right now.
Canada is successful at attracting new talent to the cleantech sector—people love to go skiing, they love the oceans and big cities—but still there is a gap. Since our traditional economic drivers are in the resource sector, we have a small talent pool for product marketing and senior level executives who can consistently turn over companies. Cleantech is a rapidly growing industry – we have to work on filling this talent gap to ensure we have the depth of experience needed at the senior executive levels as this industry develops.
“Companies are leaving the country to find markets, make sales and do business. And once they take the first step out the door, we have a harder time keeping them.”
We are also seeing that local industry is not the first adopter of local technologies. Companies are leaving the country to find markets, make sales and do business. And once they take the first step out the door, we have a harder time keeping them. There are big companies, like Carbon Engineering, who are now undertaking large-scale projects outside of the country. Carbon Engineering is a made-in-Canada star company and it will be doing its first pilot project in Houston Texas because of the funding and support from local governments and industry. This is a weakness for Canada that we must address quickly.
In terms of Canada’s strengths, the carbon tax is definitely top of the list. British Columbia has been one of the first provinces to implement and leverage the carbon tax as a tool to transition to a green economy. Now, other provinces are learning from our experience.
The second strength is R&D funding. Programs and organizations like the National Research Council Industrial Research Assistance Program (NRC IRAP) and Sustainable Development Technology Canada (SDTC) have provided a great deal of funding for companies from ideation through to TRL 6 (prototyping/demonstration), which is creating a broad pool of innovators building companies across many sectors.
The third is that we have seen a robust uptake of project funding—whether it is funding companies with $250 million to take their ideas to commercial testing or accelerating them from a concept to a product. In Alberta and British Columbia, we are seeing more of that funding, especially with the support of the SDTC, Alberta Innovates and CleanBC.
Overall, Canada’s reputation in cleantech and our commitment to the Paris Agreement has been very well received internationally.
How has the government supported the cleantech industry and what can it do to strengthen it?
Relative to other countries, the Canadian government has stepped up in a big way. But we need to tell our story better to attract and retain the best and brightest in cleantech. We need to showcase how supportive our different levels of government have been in starting and scaling companies in order to attract both customers and investors and scale up rapidly. The market now needs to take over, and that is where there are a few weaknesses.
The Province of British Columbia has joined Foresight in developing the CORE Cleantech Cluster Strategy for the province. One of the cluster’s foundational activities is learning how to sell the incredible story of Canadian cleantech innovation. Not only does this attract talent, customers and investment, it also means other industries can leverage cleantech innovation to expand market share within the province and internationally. This is also an opportunity to get local industry involved in cleantech adoption within their internal operations. Cleantech is good for business – companies remain competitive and make more money by investing in cleantech solutions.
“The flow-through tax credit program is a successful mechanism because it creates the opportunity for the government to increase capital gains for investors, who are rewarded for investing early on.”
It is the government’s role to use mechanisms that make large scale investors feel secure doing business in Canada. One mechanism is the flow-through tax credit program currently in use in the mining industry. When there is an upswing in the valuation of shares, companies can get that money out tax-free, and reinvest it in other projects within the sector. This is a successful mechanism, because it creates the opportunity for the government to increase capital gains for investors, who are rewarded for investing early on. When they exit, they will be dealt a softer blow than they would in a sector like real estate in recognition of the social and environmental benefits of their early investment in a clean economy.
A third thing the government can do—which has been up for discussion lately—is to operate a risk portfolio, where they can backstop industry partners that want to come in and fund large projects. A risk portfolio approach means that if things were to go sideways, the government is a backstop and a de-risk filter.
These progressive funding mechanisms are becoming a competitive necessity for Canada, as it is one of the mechanisms that has lured away our later stage companies toward regions that offer them. There are several mechanisms – both new and tried and tested – that can help retain these companies in Canada — especially considering the gap between prototyping and commercialization in this country.
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What threats and opportunities are being faced by the cleantech industry in Canada?
The global cleantech economy is positioned to reach about $2.6 trillion in the next two years—it is a fast-growing global sector. In terms of Canada’s global opportunities, we will go from west to east. In the West, we have transportation, carbon capture, hydrogen, water, forestry and biofuels, which all bring investment opportunities. As we move east, we get into resources—mining, oil and gas – and in the Prairies, we have agriculture. In Ontario and Quebec, the focus is on manufacturing, the resource sector and water. Finally, on the East Coast, there is ocean technology and food production. And across the entire country, we have data and artificial intelligence.
“The global cleantech economy is positioned to reach about $2.6 trillion in the next two years.”
We are entering a new era of cleantech. That era has its business model rooted in data and digital technologies, which are now playing a big role in cleantech solutions. This area is being supported by the five big players— Facebook, Amazon, Google, Apple and Microsoft—which are investing in becoming carbon neutral or carbon positive. This creates plenty of opportunities for Canadian companies to become solutions providers for the resources that are flowing across the country.
“We are entering a new era of cleantech. That era has its business model rooted in data and digital technologies, which are now playing a big role in cleantech solutions.”
Unfortunately, our biggest threat is that we continue to operate in silos from province to province. We would like to see better collaboration between provinces and organizations within provinces. Foresight is committed to working with companies across the country because no single organization can support a startup—it takes a village. The more we collaborate and communicate across Canada, the stronger we will look to international markets and buyers.
The problem is that the silos exist, not only regionally, but within sectors and stakeholder groups. Investors, government and academia are operating in silos as well. There are great things happening in Canada—but this is true for other countries also. If Canada wants to be the go-to country for everything cleantech, these silos need to be broken down.
“If Canada wants to be the go-to country for everything cleantech, these silos need to be broken down.”
Foresight has supported over 450 early stage cleantech companies, and many of them need a knowledge centre or academic institution to validate their technologies. It is usually an either-or between the major universities in Western Canada. There is an opportunity to see more collaboration among the universities to support the entire ecosystem. This is what we had in mind when building the CORE Cleantech Cluster: breaking down the silos.
The same is true in each sector. We held 25 roundtables in multiple sectors, including carbon capture and sequestration, ag tech, hydrogen and biofuels. It was fascinating to see people in the room—who we assumed had been speaking with each other this entire time—meeting for the first time. When thinking about where these sub-sectors will be in three to 10 years—what innovation, funding and policies are required—we need to make sure that they are talking the same language and share a common goal. This is the work a cluster can do: support and facilitate those conversations and bring everyone on board to meet those targets.
What is the availability of talent in cleantech?
Let’s break that down a bit. If you are a startup, you approach talent from either a technology or a business perspective. In early matchmaking, you want a strong founding team. This is easier to do, because you want high-energy people who are more entrepreneurial, but maybe less experienced – people who will figure out how to get the job done.
But as we move towards scale up, it is a different set of skills. You need people who have been successful in the sector—who have deployed technology, who have built strong relationships and who have a compelling business model. So, you have to transition your skill set throughout the stages of the company.
I think we have done a decent job in attracting good talent. Is there enough? No. Is Canada the highest paid place to be? No, there are great opportunities in other countries that will pay more for that talent. To get good people, you need to pay good money, but there is opportunity in our business models and financial planning to attract that strong talent.
“To get good people, you need to pay good money, but there is opportunity in our business models and financial planning to attract that strong talent.”
I am a serial entrepreneur, and I had a choice between three chief technology officers (CTOs) to play an important role in one of my companies. I immediately shied away from the most expensive person—but when I reflected back on my decision, I realized it would have been a better choice. It would be a better fit to solve some of our problems, and ultimately scale up faster. We can not shy away from attracting and compensating top talent.
“We need to do a better job of tapping into talent that has naturally been developing within each province. so that more opportunities open nationwide and strategic industries like cleantech and digital/data can scale quickly.”
Finally, when it comes to our talent pool, those cross-provincial silos need to be readdressed. We have a huge talent pool in Alberta—we should leverage the scale up experience from the oil and gas facilities. We need to do a better job of tapping into talent that has naturally been developing within each province. so that more opportunities open nationwide and strategic industries like cleantech and digital/data can scale quickly.
What does the future economy of the cleantech industry look like to you?
Canada is well-positioned to increase the volume of value-added products that cleantech companies are exporting— keeping in mind that the business model for these companies is evolving. We have large-scale projects, cleantech for consumers, and manufacturing, waste, and software services. The sector is growing quickly and we should not be hesitant about claiming our goal of being a leading global exporter of cleantech solutions. We must be bold.
To do this, we need to consolidate stories. We often hear of individual companies talking to investors—doing all of that work on their own. But we need to take a step back and ask: what is the strongest portfolio for carbon capture companies across the country? If we pool that together, and put a campaign behind it, investors will know that Canada is the place to visit for carbon capture technology. This will help us get the funding we need to scale companies.
I also expect that we will lose jobs in the future due to exporting. Often, when a company begins exporting, you need a small team on the ground where you are exporting. We need to own that and say, okay, let’s help our companies grow and become part of the global transition to a green economy.
Across industries, the challenge for the next five years will be change management, as organizations adopt new tech solutions. We need to find a way to get industry hyper-engaged and committed to adopting the great solutions that are available.
Still, the future is very bright for Canada. We have the opportunity to position our companies as global leaders— like Terramera or CarbonCure Technologies. There is also great work being done in Alberta to help the oil and gas sector transition to a clean economy. We just need to get real, double down and make investments to accelerate that transition.
It would be great to say that in 10 years, Canada will have 25 cleantech companies with a valuation of over $1 billion across the country. That is my big, hairy, audacious goal. If we look at other successful sectors in Canada—automotive, transportation, natural resources, oceans and manufacturing—there is no reason Canada cannot be the first country to put that stake in the ground for cleantech. I repeat: 25 companies valued at over $1 billion in the next 10 years.
“In 10 years, Canada will have 25 cleantech companies with a valuation of over $1 billion across the country. That is my big, hairy, audacious goal.”
But first, we need to do a better job at telling Canada’s story to investors and international buyers, so that we can become a global leader in clean technology. Our vision at Foresight is to be the organization that supports, facilitates, collaborates and engages all of these moving pieces to make that happen.