COVER STORY: How KPMG, Mirvac and ASX use blockchain to build trust in the property sector

When blockchain first broke into business consciousness in the middle of the last decade, those early days were best characterised as solutions looking for a problem to solve.

In most cases at the time those use cases could best be addressed through other technologies that were more reliable, and cheaper, they would actually solve the problem, not make it worse.

Take the folly of the ad tech sector whose participants believed blockchain could solve the problem of ad fraud (spoiler alert — it's worse than ever). Immutability on a distributed ledger seemed like a no-brainer, but there was one problem. The bitcoin blockchain at the time could only process a few transactions a second, compared to the billions of transactions the ad tech ecosystem generates from one moment to the next.

Half a decade later, the distributed ledger technology at the heart of the blockchain is now considered mainstream.

The experience of the construction sector is telling. Immutability turns out to be a valuable quality in supply chains for highly complex engineering projects with hundreds and potentially thousands of stakeholders providing inputs to construction and ongoing management of a property.

That’s the thinking behind the NSW Building Commissioner's Building Trustworthy Index, a project to drive transparency and lift standards in the construction industry.

With the project which was announced last year, the commissioner is looking to trace all the elements of the supply chain and assign a quality rating to both the products and the service providers involved in a building’s construction, and to assign a trustworthy rating to that building.

Data, data everywhere

That may not seem radical, but the construction sector is notoriously beset by the poor use of data. It is believed for instance that 96 percent of data collected during the design and engineering process is never shared in the construction process.

According to a study by FMI Corporation and Autodesk of nearly 4000 global construction executives, poor decision-making due to bad data costs the sector almost $90B a year just in rework alone. The same study rated the overall cost to the sector from poor data practices at $1.8 trillion annually.

The ability to collect — and assess — the quality of inputs into a building offers benefits across the construction ecosystem. Buyers can feel confident in the quality of the asset they purchase, while lenders and insurers and able to make higher quality decisions.

And of course, to governments, which generally carry the can for systematic industry failures that cost money, or worse lives, as the Grenfell Tower tragedy in London in 2017 demonstrated.

Industry insiders told Digital Nation Australia that if such a disaster befell a building in NSW there would be no fast and efficient way of identifying which other buildings were constructed with the same dangerous materials.

The blockchain-based Building Trustworthy Index being developed by KPMG with a group of partners could help solve that problem once it is widely adopted. 

When it was first announced in mid-2021, the then Minister for Better Regulation and Innovation Kevin Anderson said the goal was to “bring together the products and design certificates of compliance for each building to create a digital DNA that will establish a trustworthy rating for individual buildings, so they can be compared like-for-like.”

“We expect this to be a genuinely world-leading piece of work that will help measure the quality and insurability of buildings by identifying which buildings are trustworthy, from measuring compliance with design and construction standards to traceability of materials all the way back to the manufacturer.” Mr Anderson said.

From the more than 20 groups that submitted proposals, the commissioner ultimately settled on an ecosystem approach pitched by KPMG Origins with five core partners KPMG, Mirvac, ASX, University of Western Sydney and Microsoft forming the commercial and technological bedrock.

According to William Payne, chief digital officer, Mirvac, one of the early partners in the project, there is also a significant efficiency benefit for the Building Commissioner.

"If you're providing all this data and it's all verifiable and controlled, managed and very transparent, why do they need to focus limited resources on an organisation that's scoring a five versus an organisation that's scoring a one-star or not participating at all."

From Mirvac's perspective, there's also an opportunity to streamline the certification process for its customers, especially if lenders start to include the Trustworthy Index score in their assessments. "I'm not saying that that is the case, but the bank may look at that differently than if the building doesn't have a trustworthy index [score]or has a low one. So there are a lot of reasons why an organisation like ours would want to participate."

Building an ecosystem

According to Laszlo Peter, head of blockchains services, APAC for KPMG, and the CEO of KPMG Origins, the nature of the project lent itself to an ecosystem-centric approach.

"The government has regulatory incentives to make sure that confidence from a consumer perspective is restored. The industry has an incentive to participate because they want to standardise and differentiate between the bad and the good."

According to Peter, the partners' expertise was critical in developing the solution especially when it came to stripping out some of the key building blocks to cater for a platform that was to be multi-sided, cross-jurisdictional and vastly distributed. 

"You have to have standardised data. We have to bring in experts from the sector to work with us across many, many aspects. We also have to bring in technology. That's where the blockchain comes in."

Due to early work in other sectors, KMPG was already quite advanced in traceability and so on.  That provided a clear understanding that sharing standardised data needs to happen in a way that all participants in the value chain can trust the data that they're looking at.

He said participants need to be confident that the data "has not been manipulated by anyone, not even us as a platform operator."

That's where the collaboration with ASX comes in, he said. "The blockchain technology makes the data immutable." 

He described the governance model for the platform as the second level of defence.

"This is a contractual arrangement with ASX and KPMG. ASX is well known to know how to manage a registry. Fundamentally an exchange is usually trusted to do the right thing by the ecosystem. So that's the governance by which we segregated both technology-wise as well as governance-wise, the protection of that immutable ledger."

Paul Stonham, general manager DLT Solutions, ASX, told Digital Nation Australia that beyond traceability and immutability there is another important benefit of the blockchain — it's a living document.

"Once you're on an immutable ledger the immutable ledger can go on in real-time. If you remediate work, that can increase your score. Or if you don't take care of your building that can decrease your score. There are other potential applications as well. Property and construction companies for instance can use it to better understand and report on sustainability.

"You've now got every single input that makes up your apartment building in an immutable ledger. You can easily then extract that information to say here's my immutable ledger certified reports for my ESG because I know exactly how much steel went into that building, and how it was manufactured, I can create the CO2 offset requirements.

"It's a living and breathing building.  [They will] know what the carbon offset requirements are in the future for this building. If the strata corporation wants it to be a green building, here's the information for that."