Introduction

Background

4.1 Climate change is a significant concern for the economy, people’s health, and the natural environment. The United Nations’ Conference of the Parties, held in Paris in 2015, brought Canada and 194 other countries together in signing the Paris Agreement to reduce greenhouse gas emissions. Signatories committed to holding the increase in global average temperatures to no more than 2 degrees Celsius, preferably 1.5 degrees Celsius, above pre‑industrial temperature levels.

4.2 In July 2021, the Government of Canada committed to reducing emissions to 40% to 45% below 2005 levels by 2030. That same year, Parliament enacted the Canadian Net‑Zero Emissions Accountability Act. The act enshrines into law the country’s commitment to achieve net‑zero greenhouse gas emissions by 2050 and provides a framework of accountability and transparency to deliver on it.

4.3 In March 2022, the government published the 2030 Emissions Reduction Plan. The plan contains expected emission reductions for certain sectors of the Canadian economy. For example, for the heavy industry^{Definition 1}, the estimated change from 2005 to 2030 is a reduction of greenhouse gas emissions of 39%.

4.4 In 2021, heavy industry was the fourth-largest source of greenhouse gas emissions in Canada. In this audit, we examined manufacturing industries (heavy industry and light manufacturing^{Definition 2}), which accounted for 13.6% of total greenhouse gas emissions according to Environment and Climate Change Canada. This makes manufacturing industries an important component of the 2030 Emissions Reduction Plan. Decarbonization of the manufacturing industries is key to ensuring that Canadian industry capitalizes on new opportunities—creating new jobs, generating business growth, and strengthening and diversifying the economy.

4.5 The Net Zero Accelerator initiative is managed as a separate envelope of money within the Strategic Innovation Fund to support Canada’s strengthened climate plan released in December 2020. To be considered for the Net Zero Accelerator, projects must meet the Strategic Innovation Fund’s general objectives, which include benefiting the economy and innovation, doing research and development, creating jobs, and preserving intellectual property ownership in Canada. The minimum contribution amount is $10 million for a project with at least $20 million in total eligible supported costs.

4.6 The Net Zero Accelerator was provided with an initial $3 billion to be spent over 5 years. In Budget 2021, the government gave the initiative an additional $5 billion to be committed over 7 years starting in the 2021–22 fiscal year. The objectives of the initiative were defined in 2020 and included

• reducing near‑term greenhouse gas to ensure Canada exceeds its 2030 reduction target
• creating and maintaining immediate, good‑paying jobs to support Canada’s economic recovery
• helping to increase the production of firms providing clean technology solutions

4.7 The Net Zero Accelerator is divided into 3 pillars for investment:

• Pillar 1: Decarbonization of large emitters^{Definition 3}—to help the largest-emitting industrial sectors reduce their domestic greenhouse‑gas footprint faster and with less financial risk (for example, reducing the carbon footprint for steel manufacturing)
• Pillar 2: Industrial transformation—to ensure that established industrial sectors remain successful and competitive in the net‑zero global economy of the future (for example, reducing the carbon footprint in the aviation industry through fuel switching)
• Pillar 3: Clean technology and battery ecosystem development—to capitalize on emerging clean economy opportunities, establish Canada as a global clean technology leader, and promote the development of clean technologies and a made‑in‑Canada battery ecosystem (for example, supporting the manufacturing of electric vehicles)

4.8 To encourage large emitters to participate in the initiative, the department opened a call to action on 18 March 2022. Applicants had until 30 June 2022 to apply. In the context of this call to action, the department was targeting projects that

• would deliver annual reductions, preferably in the range of 1 megatonne of carbon dioxide equivalent, from existing domestic greenhouse gas emissions within the next decade
• had sufficient capital but could use government funding to accelerate or alleviate the project’s risks
• would secure economic, innovation, and public benefits for Canada, such as creating and retaining jobs and reinforcing opportunities to fill domestic supply chain gaps

4.9 Innovation, Science and Economic Development Canada. The department is responsible for managing the Strategic Innovation Fund’s Net Zero Accelerator initiative according to government policies and priorities. These include participating in achieving Canada’s climate goals and transforming Canadian industry to lead and compete in a net‑zero emission future.

Focus of the audit

4.10 This audit focused on whether Innovation, Science and Economic Development Canada managed the Strategic Innovation Fund’s Net Zero Accelerator to decarbonize the manufacturing industries in accordance with Canada’s climate goals and with due regard to value for money^{Definition 5} for Canadians.

4.11 This audit is important because Canada needs to significantly reduce its greenhouse gas emissions to achieve its targeted emission levels in 2030 and 2050. It is important to know whether the considerable money the Government of Canada has put into mitigation programs to reduce the country’s total emissions has been spent economically, efficiently, and effectively.

4.12 More details about the audit objective, scope, approach, and criteria are in About the Audit at the end of this report.

Findings and Recommendations

The impact of the Strategic Innovation Fund’s Net Zero Accelerator on emission reductions was not maximized

4.13 This finding matters because the Net Zero Accelerator, at $8 billion, is one of the biggest government initiatives to encourage manufacturing industries to decarbonize. Its alignment with Canada’s climate goals is key to the government meeting its objectives in the 2030 Emissions Reduction Plan and the Canadian Net‑Zero Emissions Accountability Act.

4.14 In September 2015, Canada adopted the United Nations’ 2030 Agenda for Sustainable Development, which includes 17 Sustainable Development Goals. Sustainable Development Goal 13 (Climate Action) calls on governments to integrate climate change measures into national policies, strategies, and planning. The Net Zero Accelerator initiative also contributes to the 2022 to 2026 Federal Sustainable Development Strategy’s Goal 9 (Foster Innovation and Green Infrastructure in Canada) and Goal 13 (Take Action on Climate Change and Its Impacts).

4.15 The Net Zero Accelerator is one of many important green initiatives and strategies of the federal government (Exhibit 4.1). The accelerator and programs are intended to be used only as necessary, as stand-alone support or in complement to broader initiatives—such as tax incentives, other agencies’ funding, and carbon pricing.

Diminished impact of the initiative due to lack of a horizontal industrial decarbonization policy

4.16 We found that the Strategic Innovation Fund’s Net Zero Accelerator initiative was not part of any coherent and comprehensive horizontal^{Definition 6} industrial policy on decarbonization even though the Net Zero Accelerator was incorporated under the government’s 2030 Emissions Reduction Plan. Such a policy would have helped Innovation, Science and Economic Development Canada channel the funds to target the most critical industries for emission reductions. In our view, without having a clearly defined path for certain key large-emitting industries, governments are in danger of funding multiple projects in an uncoordinated manner, including some that may not be aligned with the desired outcome.

4.17 We noted that the Net‑Zero Advisory Body,^{Definition 7} in its annual report published in January 2023, called for the Government of Canada to develop and implement a net‑zero industrial policy and explained in detail why and how to establish such a policy. The advisory body argued that adopting a net‑zero industrial policy would

• allow Canada to be more proactive in meeting its climate objectives
• create and strengthen economic opportunities for Canadian workers
• increase accountability in the transition to net‑zero emissions
• ensure that Canadians benefit from emerging global economic opportunities

We noted that the Government of Canada responded to these recommendations by acknowledging the growing interest in Canada for a net‑zero industrial policy without committing to developing one.

4.18 The Net Zero Accelerator initiative was governed by an investment framework that identified industries and technologies for funding according to the initiative’s objective. However, we found that this framework was specific to this single initiative and did not constitute a Canadian industrial decarbonization policy as envisioned by the Net‑Zero Advisory Body.

4.19 We also found that the department had begun to analyze the suitability of the design of the Net Zero Accelerator in the context of new government climate initiatives (Exhibit 4.1). We found that in its draft analysis, the department proposed an approach based on collaboration with the departments and agencies responsible for the other initiatives. In our view, a horizontal industrial policy on decarbonization would help clarify the roles of each initiative.

4.20 To ensure the timely decarbonizing of manufacturing industries, Innovation, Science and Economic Development Canada, in collaboration with appropriate departments and agencies, should develop and implement a strategic horizontal approach detailing steps to reach Canada’s climate goals. This approach should be coherent and comprehensive and target a limited number of key industries (large emitters) as a priority and then be extended to other industries at a later stage. As well, the department should ensure that the investment framework of the Strategic Innovation Fund’s Net Zero Accelerator aligns with this horizontal approach.

The department’s response. Partially agreed.

See Recommendations and Responses at the end of this report for detailed responses.

Long and difficult application review process

4.21 We found that the application review process for the Net Zero Accelerator was long and complex (Exhibit 4.2). This meant that Innovation, Science and Economic Development Canada was not moving at the speed companies needed to successfully develop and deliver innovative projects. For example, for the 17 contribution agreements signed in September 2023, we found the following:

• It took on average about 1 year and 8 months for applicants to sign an agreement with the department.
• The shortest period between application and signature was about a half a year, and the longest was about 4 and a half years.

4.22 On the basis of the responses to our survey of the initiative’s applicants, we found that it took them an average of 407 hours to complete an application form. These lengthy processes were in contrast to the tax incentives provided in the United States, where companies can find out the value of incentives as soon as they define their projects.

4.23 We found that of the 10 projects announced in November 2022 for the call to action, 6 had not completed their application processes and were still finalizing their feasibility studies. This illustrated how, in certain circumstances, some delays in the review process could be attributed to applicants.

4.24 In addition to the long processing time, we found that some projects experienced shortcomings in the department’s engagement with the applicants during the review process:

• Some companies reported that they waited months to be contacted after submitting their applications.
• Some applications were kept on hold while the department waited for other applications to compare them with.
• The department did not always explain the rationale for rejecting applications.

4.25 We found that the length of time between the initial application and a signed contribution agreement compounded a problem inherent in programs like the Strategic Innovation Fund that receive funds on a discretionary basis. These funds are depleted as the programs disburse money for specific projects. In these programs, departments and agencies must commit funding to businesses during negotiations without knowing how long the negotiations will take or whether they will succeed. As a result, other applicants have access to less money, which might create delays for them.

4.26 For example, the department told us that of the $8 billion in initial funding of the Net Zero Accelerator, in September 2023,

• $3.2 billion were committed in contribution agreements
• $4.4 billion were set aside while contribution agreements were negotiated with some companies as well as to cover cost increases on existing pillar 1 projects
• $0.4 billion were available for other new contribution agreements

4.27 The department told us that the $0.4 billion in uncommitted funds were in pillar 1 of the initiative. This meant that all funding for pillars 2 and 3 had been set aside or was engaged in contribution agreements. As a result, the department did not have any funding remaining under the Net Zero Accelerator envelope for projects that aligned with pillars 2 and 3, and it had to use money from its Strategic Innovation Fund core funding to advance these projects. As of September 2023, only $147 million were available as discretionary funding from the Strategic Innovation Fund until 2029–30 (apart from money set aside under the initiative and reserved funding for other investment targets, such as aerospace, biomanufacturing, and minerals).

4.28 Finally, we found that the department implemented a special process for “high‑profile” companies, such as multinationals, large firms requesting more than $100 million, and urgent requests. A team of officials vetted whether proposals aligned with the initiative and were credible before the formal statement of interest. The team also conducted additional, early due diligence on a case‑by‑case basis. We also found that the department sped up the review process for the call to action by replacing the regular statement of interest with a more comprehensive form, which included the greenhouse gas workbook, and by not requiring a referral to the Greenhouse Gas Impact Working Group (the interdepartmental group that evaluates each project’s projections of greenhouse gas emission reductions). In our view, these 2 examples showed that the application review process could be improved to make it faster.

4.29 To make the review process for the Strategic Innovation Fund’s Net Zero Accelerator more effective and efficient, Innovation, Science and Economic Development Canada should

• analyze its internal review process for applications to optimize and streamline it without compromising the need for an appropriate level of due diligence, including for estimates of greenhouse gas emission reductions
• provide better engagement with the applicants by keeping them better informed of the status of their applications

The department’s response. Agreed.

See Recommendations and Responses at the end of this report for detailed responses.

Difficulty attracting applications from large emitters

4.30 We found that Innovation, Science and Economic Development Canada had difficulty attracting Canada’s large emitters to apply to the Strategic Innovation Fund’s Net Zero Accelerator (pillar 1). Indeed, many companies, especially large emitters, have little incentive to decarbonize their operations (Exhibit 4.3). This is concerning because large emitters hold a bigger impact for reducing direct emissions than projects with uncertain reductions down the line (Exhibit 4.4).

4.31 Out of the 55 emitters that emitted at least 1 megatonne of carbon dioxide equivalent in 2021 in Canada, we found that

• only 4 applied to the Net Zero Accelerator before the call to action
• only 2 of these signed a contribution agreement

4.32 We found that after the department launched the call to action in March 2022, 11 more companies emitting at least 1 megatonne of carbon dioxide equivalent in 2021 applied. Ten companies were selected to move to the next step in the review process, and 9 applicants received a letter of intent. At the time of the audit, these 9 projects were moving through the review process, with some advancing to negotiations of terms and some still in due diligence. The impact of the call to action remained unclear. The low uptake by large emitters could indicate that they were not ready to reduce their greenhouse gas emissions or that the program design did not correspond to their needs.

4.33 We also found that in some of the projects responding to the call to action, an important portion of sales of the products manufactured would occur outside of Canada. This meant that the benefits of the initiative funding would likely not be entirely reflected in Canada’s emission accounting toward reaching our climate goals.

4.34 The department told us that even after the call to action, $0.4 billion in uncommitted funds for large emitters were still left to be allocated. It also told us that finding new projects that could obtain further greenhouse gas reductions in time for 2030 was becoming increasingly difficult because of the time needed to implement projects that met the initiative’s criteria.

4.35 The department indicated that it had considered changing the timing requirements or accepting projects with fewer direct reductions (for example, clean‑fuel producers and large-emitter partnerships) to allocate the remaining funding and further advance the government’s objective of decarbonizing large emitters. However, we found that no government decisions had been made at the time of the audit.

4.36 To make the application process for the Strategic Innovation Fund’s Net Zero Accelerator more efficient and effective, Innovation, Science and Economic Development Canada should analyze how to better encourage large emitters to apply to the initiative, including assessing whether the design of the program is responding to their needs.

The department’s response. Agreed.

See Recommendations and Responses at the end of this report for detailed responses.

Innovation, Science and Economic Development Canada’s calculations of anticipated greenhouse gas reductions for funded projects did not always follow relevant standards

4.37 This finding matters because the Government of Canada has made commitments on greenhouse gas reductions to be achieved by 2030 supported by programs such as the Strategic Innovation Fund’s Net Zero Accelerator. If the Net Zero Accelerator does not secure credible emission reduction, the federal government might not fulfill its commitments, which would undermine efforts to address climate change.

4.38 To assess applicants’ planned greenhouse gas emission reductions, Innovation, Science and Economic Development Canada adapted both the International Organization for Standardization’s standard and the Greenhouse Gas Protocol for Project Accounting. These standards required projects to be assessed using a life cycle approach. This meant that the assessment accounted for upstream effects^{Definition 9} and downstream effects^{Definition 10} of greenhouse gases in addition to the direct facility activities.

4.39 The Greenhouse Gas Protocol for Project Accounting has 6 principles intended to underpin all aspects of the accounting, quantifying, and reporting of project-based greenhouse gas reductions (Exhibit 4.5). The application of these principles helps ensure the credibility and consistency of efforts to quantify and report project-based greenhouse gas reductions according to the protocol.

4.40 After assessing emissions, the department obtained an emission reduction number that it used for both project recommendations and internal tracking in its emission reduction tracker. The tracker is a tool that was designed to measure the Net Zero Accelerator’s progress toward an internal target set by the department itself and is not public.

Shortcomings in accounting of greenhouse gas emission reductions

4.41 We found a potential risk of double counting in tracking emission reductions. This was because Innovation, Science and Economic Development Canada funded companies that made clean technologies and those that used clean technologies, and it allowed both to claim credit for emission reductions even though only the latter would achieve the reductions. When we asked how the department mitigated the effects of double counting, department officials stated that they did this through collecting information and doing due diligence when assessing the greenhouse gas reduction.

4.42 We also found that while the tracker provided the dollar per tonne and funding details of projects in pillar 1, it did not do this for projects in pillars 2 and 3. We asked department officials to provide a detailed breakdown for the greenhouse gas reduction in pillars 2 and 3, project by project. We found that reductions were 2.2 megatonnes lower than the previous aggregated total for the same projects whose emission reductions were verified by the interdepartmental Greenhouse Gas Impact Working Group, led by the department and Environment and Climate Change Canada. In our opinion, this over‑reporting of emission reductions is concerning because the department used the tracker for communicating on the progress of the initiative.

4.43 We found that in spring 2022, the department, as a result of interdepartmental working group discussions, added a qualitative method of assessing emission reduction for certain projects. The original quantitative assessment was adapted from international standards to estimate emission reductions per project. It was a key tool for projects that involved or had a clear line of sight to adopting clean technology. But for projects whose impacts would be realized beyond 2030 or that were several steps from realizing their ultimate greenhouse gas reductions, the tool did not estimate 2030 greenhouse gas performance with sufficient certainty or did not capture the full greenhouse gas benefits of the projects. The quantitative assessment remained unchanged for projects with quantifiable reductions (generally pillar 1, with some cases under pillars 2 and 3). But after spring 2022, with the change in methodology, the funded projects in pillars 2 and 3 had no explicit quantified emission reductions.

4.44 We found that after this change, the department did not revise the previous quantitative assessments it had completed for similar projects according to the new methodology. This meant that similar projects had greenhouse gas reduction values in some cases but qualitative assessments in others, making them incomparable. When asked why they did not revise the previous assessments, department officials stated that it was because they did not have employee capacity. We are concerned that estimates needed to be lowered but nonetheless were used to report on progress of the fund.

4.45 We found that as of September 2023, the department had 17 contribution agreements in place, representing a commitment of $3.2 billion under the Net Zero Accelerator initiative. Of these, only 5 companies had signed a document that explicitly committed them to reducing a specific amount of greenhouse gas emissions. These commitments would result in a reduction of 6.2 megatonnes of greenhouse gas reductions (see Exhibit 4.4).

4.46 In our opinion, this 6.2 megatonnes was the most credible reflection of the Net Zero Accelerator’s progress. This is because, according to department officials, reductions quoted in contribution agreements were not necessarily the estimates that the interdepartmental Greenhouse Gas Impact Working Group agreed to. In addition, without any reassessment of past estimates of greenhouse gas reductions to ensure the correct methodology was used, we can rely only on the concrete reduction commitments reflected in the contribution agreements. We noted that the department published estimates of emission reductions only for the first 2 announced projects.

4.47 Environment and Climate Change Canada told us it estimated that the Net Zero Accelerator would reduce greenhouse gas emissions by 19 to 20 megatonnes in 2030. This estimate is subject to change as new policies are adopted over time.

4.48 To ensure that the Strategic Innovation Fund’s Net Zero Accelerator’s greenhouse gas reduction estimates are credible and are adding value for Canadian taxpayers, Innovation, Science and Economic Development Canada should

• improve the precision and consistency of the estimates of emission reductions by tracking and counting only those emissions that have a net reduction effect on the overall greenhouse gas inventory of Canada
• review its methodology to avoid overstating emission reductions, in accordance with international best practices
• set a new internal target of emission reductions for the Net Zero Accelerator

The department’s response. Partially agreed.

See Recommendations and Responses at the end of this report for detailed responses.

Lack of adherence to assessment standards

4.49 We found that Innovation, Science and Economic Development Canada did not follow some of the principles of the Greenhouse Gas Protocol for Project Accounting on several occasions, which affected the credibility of the emission reductions estimated. This happened through the assessment process of the interdepartmental Greenhouse Gas Impact Working Group. As of September 2023, the Net Zero Accelerator had 14 projects with greenhouse gas reductions that had been reviewed by the interdepartmental greenhouse gas working group. Of those, 6 had signed a contribution agreement, and we found inconsistencies with 4 projects of those 6.

4.50 As stated in paragraphs 4.43 and 4.44, we found that the department added an option to look at projects qualitatively but did not revise any previous work. This meant that similar projects had greenhouse gas reduction values in some cases but not in others, contravening the principle of consistency.

4.51 We also found that in one project, the department did not include all relevant information in the greenhouse gas assessment exercise, breaching the principles of transparency and completeness. For this project, which was to construct a manufacturing plant to make a clean technology, we found that the department’s calculations of the overall impact of greenhouse gases failed to include

• greenhouse gas emission factors related to the construction of the plant (that is, the processed and raw materials used)
• emissions associated with the construction of a pipeline to transport captured carbon dioxide to an underground storage area

4.52 In another case, we found that the department did not ensure that the project documentation included the source of data used to calculate several emission factors. As a result, the project documentation did not follow the principle of transparency.

4.53 Finally, we also found that several greenhouse gas assessments did not consider the full life cycle of the emissions. They concentrated on facility activities and downstream effects, where the emission reduction benefits would occur, and largely ignored upstream effects. Upstream effects include the sourcing of the raw material needed for the projects, and these processes are not always green.

4.54 To improve the quality of its estimated greenhouse gas emission reductions per project, Innovation, Science and Economic Development Canada should be consistent in how it assesses projects and ensure that projects provide all the data needed for assessment and that project estimates follow international greenhouse gas accounting standards.

The department’s response. Partially agreed.

See Recommendations and Responses at the end of this report for detailed responses.

The department did not assess the effectiveness of the Strategic Innovation Fund’s Net Zero Accelerator

4.55 This finding matters because government departments and agencies should ensure that public funding of companies provides Canadian taxpayers with value for money by using taxpayer resources efficiently, producing program outputs economically, and achieving outcomes consistent with program objectives.

No clear demonstration of projects’ value for money in reducing greenhouse gas emissions

4.56 We found that Innovation, Science and Economic Development Canada did not collect data on and track the Net Zero Accelerator’s overall value for money. Department officials stated that they determined the value for money of the initiative’s projects through analysis done at the due diligence stage, during project selection.

4.57 We found that the department did not track the dollar per tonne cost for the majority of funded projects. This prevented us from reporting on a credible dollar per tonne for the greenhouse gas reductions funded by the Strategic Innovation Fund’s Net Zero Accelerator.

4.58 In addition, the potential for double counting and the absence of reassessments after the change in methodology, as well as all the other shortcomings identified in the assessment and tracking of emission reductions (see the section starting at paragraph 4.41), meant that on the basis of the information we saw, we could not calculate a true and meaningful dollar per tonne of greenhouse gas abated for all projects that were approved.

4.59 However, to estimate the value for money of the initiative, we calculated a dollar per tonne that applied only for the applicants that made concrete commitments to reduce greenhouse gas emissions as part of their contribution agreements. In looking at only the money allocated to these projects, we found that 5 companies that received total funding of $886 million agreed to reduce 6.2 megatonnes of greenhouse gas emissions, for a cost per tonne of $143. This figure almost quadrupled, becoming $523 per tonne, when we looked at the total funding committed by the Net Zero Accelerator compared with the direct greenhouse gas reduction possible according to contribution agreements.

Incomplete due diligence on greenhouse gas emission reduction commitments

4.60 We found that, on several occasions, Innovation, Science and Economic Development Canada did not always follow program procedures put in place to make sure due diligence related to greenhouse gas emission reduction commitments was done before applicants were assessed, selected, and awarded. For example, several applicants were not assessed by the interdepartmental Greenhouse Gas Impact Working Group because the working group had not been established when the applications were received. In addition, 3 applicants signed contribution agreements before the full due diligence was completed.

4.61 We also found that the interdepartmental Greenhouse Gas Impact Working Group could not always fully assess the assumptions that applicants presented in the workbook they used to estimate the greenhouse gas outcomes for projects submitted to the Strategic Innovation Fund:

• In some cases, the group did not have enough time to do a full assessment because of pressure from other groups, including senior officials, to complete the work faster.
• In some cases, the consultants were not able to fully verify workbook information because it was confidential or lacked comparable data.
• In one case, the group included greenhouse gas assumptions for only the most impactful activities because of limited space in the workbook.

4.62 In our opinion, if projects are selected without full due diligence, the government risks funding projects that do not provide value for money and that may not achieve its climate commitments.

4.63 To ensure that Innovation, Science and Economic Development Canada’s reporting of greenhouse gas reduction commitments is accurate, the department should follow due diligence and complete the assessment for all projects before agreements are signed.

The department’s response. Agreed.

See Recommendations and Responses at the end of this report for detailed responses.

The applicant requirements for equity, diversity, and inclusion were missing concrete metrics and deadlines

4.64 This finding matters because the Government of Canada expects departments and agencies, when developing their programs and policies, to consider the social, economic, and environmental dimensions of sustainable development. Government initiatives are also expected to respond to the needs of diverse groups of Canadians, including Indigenous peoples, when identifying and addressing barriers to the full participation of diverse groups of people.

4.65 In 1995, the Government of Canada committed to using gender-based analysis to advance gender equality in Canada. Since 1995, the government has been committed to analyzing the gender-specific effects of policies, programs, and legislation on people throughout its departments and agencies. This commitment has since expanded to encompass many diverse groups, including Indigenous peoples. Gender-based analysis plus^{Definition 11} has been incorporated into the 2022 to 2026 Federal Sustainable Development Strategy to advance gender equality under Goal 5 (Champion Gender Equality).

4.66 Diversity is related to the United Nations’ Sustainable Development Goal 10 (Reduced Inequalities) and more specifically to target 10.2: “By 2030, empower and promote the social, economic and political inclusion of all, irrespective of age, sex, disability, race, ethnicity, origin, religion or economic or other status.” This international target has been incorporated into the 2022 to 2026 Federal Sustainable Development Strategy as part of Canada’s commitment to take action to reduce inequality.

4.67 Applicants for the Strategic Innovation Fund’s Net Zero Accelerator initiative were required to implement a plan for improving representation across all demographic groups and to commit to equity, diversity, and inclusion as part of their contribution agreements. The applicants were given 1 year to implement the plan after signing the contribution agreement.

Insufficient applicant requirements for equity, diversity, and inclusion

4.68 We found that at the time of the audit, some applicants had developed a plan for improving representation, while some, who had not passed the deadline, were still in the process of doing so.

4.69 We found that of the 17 contribution agreements signed, only 7 included concrete and measurable metrics related to equity, diversity, and inclusion. Specifically, all 7 included targets related to an increased representation of women, while only 3 also included targets related to all other aspects of equity, diversity, and inclusion. We also found that, except for 1 case, Innovation, Science and Economic Development Canada did not ask applicants for any concrete timeline to implement their equity, diversity, and inclusion plans.

4.70 Lastly, we found that the department planned to track applicants’ progress on implementing the equity, diversity, and inclusion plans only for the duration of the contribution agreements (15 to 25 years after completion of the work phase) but did not require them to complete the plan in that time frame. As a result, if the company did not achieve the stated targets by the end of the term, the department would not know whether it continued to implement the plan.

4.71 To ensure that the companies funded under the Strategic Innovation Fund’s Net Zero Accelerator deliver on diversity, equity, and inclusion for Canadians, Innovation, Science and Economic Development Canada should, in future contribution agreements, create

• concrete metrics and targets on diversity, equity, and inclusion with minimums to be achieved
• concrete deadlines for minimum implementation by the end of the term period

The department’s response. Agreed.

See Recommendations and Responses at the end of this report for detailed responses.

Conclusion

4.72 We concluded that Innovation, Science and Economic Development Canada did not effectively manage the Strategic Innovation Fund’s Net Zero Accelerator to decarbonize the manufacturing industries in accordance with Canada’s climate goals or with due regard to value for money for Canadians.

4.73 The department had difficulty attracting applications from large emitters. As a result, after $3.2 billion committed in contribution agreements, only 6.2 megatonnes of carbon dioxide equivalent had been committed to by the companies in contribution agreements. Furthermore, there was a larger issue that the Government of Canada as a whole needs to address: the lack of a horizontal industrial decarbonization policy.

4.74 The department also had problems with the quality and reliability of some of its estimated greenhouse gas emission reductions for individual projects. And finally, it did not apply sufficient requirements in the contribution agreements for equity, diversity, and inclusion to ensure that applicants would deliver concrete actions within a well‑defined time frame.