A lack of risk capital and policy gaps were identified as weaknesses in Canada’s cleantech sector by speakers at Toronto Climate Week. But they also praised the country for its world-class talent and funding sources.

Held Wednesday at the University of Toronto’s Schwartz Reisman Innovation Campus, the inaugural event assembled some of Canada’s top players in the green economy to discuss how Toronto can be a hub for climate-centric businesses.

While Canada and Ontario have historically been strong at supporting startups, scaling them up remains a hurdle according to Tom Rand, managing partner and co-founder of Toronto-based venture capital firm ArcTern Ventures. During a panel about cleantech and innovation, he said it is a particular challenge with a hardware-driven sector like cleantech, which requires high capital expenditures.

There is “institutional lethargy in providing risk capital to companies that are doing hard things” in Canada, Rand said.

The Canadian and Ontario governments took flak from both speakers during the policy panel. ​In particular Keith Brooks, the programs director at Environmental Defence, called out a “federal vacuum” in climate policy, citing the retreat on carbon pricing. Ontario is also not on track to meet its 2030 climate target, he noted.

Speakers on the cleantech and innovation panel agreed that Canada's sustainability sector cannot relax, even as the U.S. government aggressively rolls back environmental initiatives. Elliott Cappell, the national climate change leader at PwC, visited the U.S. last week and said he did not see waning interest in sustainable investing among the business sector.

If Canada is complacent, “we are going to fall far behind,” he told the audience.

Canada’s advantages, disadvantages in the sector

While he pointed out a widespread disinterest for riskier investment in Canada, Rand said there are organizations such as the Canada Growth Fund and the Business Development Bank of Canada which are willing to make such bets. The cleantech investment pullback was primarily from pension funds such as La Caisse and OMERS, he said.

Capital is fungible, and “it doesn’t matter where you get it from,” Rand said. For example, Toronto-based energy storage company Hydrostor Inc. is backed by Goldman Sachs' Horizon Environment & Climate Solutions fund.

To bridge the investment gap, Rand suggested a private capital fund with an internal engineering team that understands the execution risk of a technology. The fund would not need to rely on a bank for such an assessment, he explained.

At a separate talk, Nelson Switzer, the managing partner and co-founder of Toronto-based fund Climate Innovation Capital, agreed with Rand that Canada needs more institutional risk tolerance. He also listed the country's strengths in the climate sector.

Canada is a strong performer in research and development and artificial intelligence, Switzer said. It is home to large pension funds and banks to access for capital. The country’s culture cherishes innovation and stewardship, and promotes a collaborative entrepreneurial environment, he added.

As the U.S. withdraws on climate leadership, Canada has the chance to “position ourselves as a global climate innovation hub,” Switzer said.

Sanders Lazier, the co-founder and CEO of Carbonhound, a Toronto company behind a climate software platform, said during the cleantech and innovation panel Canada can benefit from the situation in the U.S. 

“There’s going to be a lot of really talented people that may feel a little bit disenfranchised,” he added. “I think there’s a huge opportunity for us to consolidate some of the best talent in the world in Toronto, in Canada.”

A policy vacuum to be filled

During the policy panel, Brooks said government action is crucial to get the public and companies on board with the energy transition. Solar power is booming because of government incentives to build, adopt and innovate within the sector, he said.

But Canada and Ontario are not leading on policy, Brooks declared. One example he gave was the federal government delaying the electric vehicle sales target. Another was the Ontario government’s “throttling” of the industrial carbon price, which resulted in the province being sued by energy companies over the cancelled cap-and-trade program.

Prime Minister Mark Carney was a target of Brooks’ criticism. He argued Carney has been pulling back Canada’s climate policies, despite his climate advocacy when he served as Bank of England governor.

“He needs to signal sooner rather than later what are his intentions around climate change.”

Toby Heaps, the co-founder and CEO of magazine Corporate Knights who sat on the panel alongside Brooks, took a more conciliatory tone. Heaps said Carney is balancing affordability, trade relations with the U.S. and demands for increased defence spending alongside his climate ambitions.

As Carney emphasizes nation-building projects in Canada, Heaps endorsed the Trans-Canada Transmission Link. A renewables-based, coast-to-coast transmission line, it would channel clean energy across the country, which Corporate Knights’ modelling found would reduce the cost of decarbonization by billions of dollars over the next 25 years.

“You know why you got into this,” Heaps said, directing his remarks at the prime minister. “Don’t for a moment let the fossil fuel industry . . . pull the wool over Canadian eyes and your cabinet’s eyes that we need to stick with them one second longer than we need to.”