Canada paid McKinsey for clean tech advice despite conflicts #CanadaFinance

The federal government paid $1.35 million for advice on how to beef up Canada’s clean technology policies to a prestigious global consulting firm that was also advising some of North America’s largest oil and gas companies, according to court documents reviewed by The Narwhal.

A federal Crown corporation paid the firm, McKinsey & Company, to provide the advice to the Finance Department a few months before Finance Minister Chrystia Freeland tabled her 2023 budget. 

McKinsey was tasked with recommending fiscal policies to help Canada’s clean energy sector compete with massive tax breaks and other incentives the United States introduced in the Biden-Harris White House’s climate change-focused 2022 Inflation Reduction Act.

The Narwhal reviewed court filings from unrelated proceedings against McKinsey & Company in the U.S., which indicate the firm’s extensive global client portfolio already included energy companies in the Canadian oilpatch, many of which profit from fossil fuel extraction and processing.

The court filings consist of affidavits signed by a McKinsey partner in the U.S. who listed the firm’s clients. The records include hundreds of pages listing international offices where many of McKinsey’s 35,000 staff advise prominent multinational clients from a range of areas, including the financial sector, technology and other governments.

McKinsey & Company says it disclosed ‘both perceived and actual conflicts’

In a statement sent to The Narwhal, a spokesperson for McKinsey confirmed it identified conflicts before it accepted the 2022 contract from the Canada Development Investment Corporation, but noted it followed procurement rules. The statement said the company was awarded the contract based on “extensive industry expertise.”

“We disclosed what was required of us, including both perceived and actual conflicts,” Alley Adams, a McKinsey spokesperson, wrote in an email to The Narwhal. “Any suggestion that we have not disclosed actual or potential conflicts, not followed the law and not acted as a responsible supplier to the Government of Canada, is false.”

Adams did not answer questions about when and how it informed federal officials of actual and perceived conflicts, and what those conflicts were.

The federal Finance Department is defending the contract. In a statement, it told The Narwhal that federal officials followed procurement rules while getting advice about how Canada could remain competitive with the U.S..

But Negar Haghighat, a Montreal-based consultant who advises clients on governance and ethical issues, said the federal government needs to explain why it offered the contract to McKinsey, despite being informed about conflicts.

“The question here is, ‘How do you go forward with a partner that tells you they are in conflict?’ It goes against your responsibilities toward the Canadian people,” she told The Narwhal in an interview. “You don’t do that, unless you say why you did it. This is not something that is okay. This is not how we use public funds.”

The same $1.35 million contract was highlighted in a June report by the federal auditor general, which said Canada’s Finance Department may have used the Crown corporation in order to skirt tougher procurement rules. The audit also concluded that the federal government needs to do more to proactively identify conflicts prior to awarding contracts. 

Haghighat said the existence of any conflicts casts a cloud over the quality of advice McKinsey provided to the government and how federal officials used that advice.

“As the public, we will never know whether McKinsey’s interests were better served by advising the federal government or advising the oil and gas companies,” she said.

McKinsey clients include members of Pathways Alliance group of oilsands companies

McKinsey has operated in Canada for over six decades and employs over 650 consultants in the country, according to its website.

Among the firm’s clients listed on the court documents are Canadian Natural Resources Limited, Suncor Energy, Cenovus and ConocoPhillips Canada, all members of the Pathways Alliance of oilsands companies. The alliance has lobbied the federal government to weaken or delay climate change policies. At the same time, the Pathways Alliance was running a marketing campaign claiming the industry was taking action to slash its carbon pollution. 

McKinsey’s other oil and gas clients with Canadian operations named in the documents include Shell Canada, the North American division of the China National Offshore Oil Corporation, Repsol Oil and Gas, Murphy Oil Company and LNG Canada. 

Canadian oil and gas companies have been lobbying for tax breaks and subsidies, including for carbon capture, utilization and storage. Industry advocates say this technology would reduce heat-trapping carbon pollution by capturing it and storing it underground, while critics have questioned whether it can be successfully deployed on a large enough scale to make a significant dent in fossil fuel pollution. The clean technology section of the 2023 budget increased tax breaks for carbon capture projects by $520 million over five years.

“McKinsey. Spoke with the [deputy minister] and he is comfortable with this. No need for any further calls. Grateful for confirmation when approved by the Board tomorrow. Thanks.”

Email from former Finance Canada assistant deputy minister Glenn Purves to Elizabeth Wademan, president of the Canada Development Investment Corporation, on Dec. 6, 2022

The Narwhal sent questions to more than a dozen of McKinsey’s clients, including those named above and major financial institutions, to ask what type of work McKinsey did for them and whether they were aware of the advice the firm provided to the Canadian government. Shell Canada was the only oil and gas company to respond, saying it was trying to track down details of a contract it had with McKinsey.

McKinsey did not directly answer questions about whether any consultants who worked with oilpatch clients were involved in providing clean energy advice to the federal government. It told The Narwhal it follows strict policies to avoid conflicts of interest and is proud of its work for the Canadian government.

In 2021, a group of more than 1,110 McKinsey employees released a letter calling on the firm to disclose more information about its fossil fuel clients. According to the New York Times, the firm had advised 43 of the world’s 100 largest polluters, earning hundreds of millions of dollars.

At the time, the firm said it was committed to protecting the planet and was working with clients to help improve their environmental performance.

The firm has also been struck by other serious controversies over the years, including over its alleged role in the deadly opioid epidemic.

In 2021, McKinsey & Company reached a US$573 million settlement with attorneys general from across the United States over the work it did to boost Purdue Pharma’s OxyContin painkiller, linked to the opioid crisis and hundreds of thousands of deaths.

At the time, the company said it deeply regretted not adequately acknowledging the tragic consequences of the epidemic, saying it was hoping to be part of the solution to the crisis going forward.

Adams, from McKinsey, told The Narwhal the firm complies with government requirements when it takes on contracts. Adams said it also sometimes discloses information, even when it is not required.

“One of the reasons so many organizations choose to work with McKinsey & Company is they can be confident we consistently provide impartial and unbiased service,” Adams told The Narwhal.

Michael Sabia, the former deputy minister of finance, had ‘keen interest’ in file: email

Finance Canada declined an interview request about the McKinsey & Company contract, which was awarded by the Canada Development Investment Corporation, a Crown corporation often referred to as CDEV. Neither the department nor the corporation directly responded to questions about which conflicts were disclosed by McKinsey or whether any federal officials were aware of the work McKinsey did for oil and gas companies.

They also did not respond to questions asking whether officials awarded the contract to McKinsey before or after the firm had disclosed its conflicts.

“The contract was approved through a competitive process in accordance with [the Crown corporation’s] procurement policy,” a Finance Department spokesperson said in a statement. “Ensuring Canada’s continued competitiveness in light of the U.S. Inflation Reduction Act was and is a priority for the federal government.”

Internal emails obtained by The Narwhal indicate the federal department’s then-deputy minister, Michael Sabia, was aware Finance Canada officials participated in the procurement process and approved awarding the contract to McKinsey before they had negotiated a price.

“McKinsey. Spoke with [Sabia] and he is comfortable with this,” Glen Purves, an assistant deputy minister at Finance Canada, wrote in an email to the president of the corporation, Elizabeth Wademan, in late 2022. “No need for any further calls. Grateful for confirmation when approved by the board tomorrow. Thanks.”

Wademan responded the next day.

”Board has approved and we are good to go. Al and I are calling McKinsey tonight,” she said, referring to her vice president, Al Hamdani. “We are going to look to get engagement letter signed forthwith and will do what we can to negotiate on fees.”

“I expect Michael [Sabia] may wish to be on this given his keen interest in his file, and will defer to you on this.”

Auditor general found public servants provided poor oversight of McKinsey contracts

Wademan and Hamdani did not respond to emails requesting an interview. Purves is no longer at Finance Canada and told The Narwhal he would let his former employer respond to questions on his behalf. Sabia is now the CEO of Hydro-Québec, which said questions about the contract should be directed to Finance Canada.

In response to questions from The Narwhal, Finance Minister Freeland’s office said it was aware public servants were seeking private sector advice and denied “running or directing” the procurement process.

But in June, Canada’s auditor general criticized the government over the contract, as part of a scathing audit that detailed how public servants broke rules and provided poor oversight as various federal departments and agencies issued about $200 million in contracts to McKinsey between 2011 and 2023. The audit criticized federal agencies over their “frequent disregard” of contracting policies and failing to prove that some contracts were even needed or delivering value.

Regarding the 2022 contract for advice about clean technology policies, the audit said Finance Canada “limited competition and transparency” and appeared to use the Crown corporation as a “proxy” to avoid tougher procurement rules and fast-track the deal.

The audit also recommended the government introduce more proactive policies to identify conflicts of interest.

Canada Development Investment Corporation only gave firms four days to bid on contract

Haghighat also questioned whether federal officials had limited a fair competition on the contract, by not giving potential bidders enough time to submit proposals.

When pressed for details about the corporation’s internal review, Thomas Chanzy, vice president and head of communications and public affairs at the Canada Development Investment Corporation, said in a written statement that officials gave bidders only four days to submit proposals after publicly posting the call for tenders.

Chanzy said the corporation had no precise explanation for shortening the deadline from a previous internal plan to give bidders up to 11 days to submit their proposals.

“There is no specific reason as to why the timeline was shortened except for the fact that it was an urgent request,” Chanzy told The Narwhal in an email.

He also confirmed that Finance Department officials were part of the team reviewing bids with the corporation and that the team unanimously agreed McKinsey was the best option.

But Chanzy said the corporation agreed with the auditor general’s recommendation that it needed to improve how it identifies conflicts of interest.

“We committed to reviewing our policies and practices … with a view to ensuring that a proactive process is in place to identify actual or perceived conflicts of interest,” Chanzy wrote in an email to The Narwhal. “This review process was completed, and an updated procurement policy was approved by our board this summer.”

Chanzy did not respond to follow-up questions asking for details about the new policy and whether it was public.