Despite the stark warnings of climate breakdown from the IPCC and the UN, it’s business as usual for fossil fuel capitalism. An astonishing 56% of the G20 nations’ Covid-19 recovery funds for energy have gone to fossil fuel companies.

In April, the Glasgow Financial Alliance for Net Zero (GFANZ) chaired by Mark Carney was launched to bring together leading financial corporations to redirect finance towards achieving net zero by 2050. Yet many of its signatories remain among the world’s top backers of fossil fuels. Some have even issued new financing to companies expanding fossil fuel infrastructure since signing up with the GFANZ.

Oil extraction in the Amazon is being financed by GFANZ members HSBC and Citi, for instance, while Deutsche Bank, MUFG, and Credit Agricole are issuing bonds for a company that constructs pipelines in Indigenous territories. These are just some of the more prominent players in a financial system that remains too tightly entwined with fossil capitalism through unaccountable and complex global flows between fossil fuel corporations and private equity firms, asset managers, pension funds and other financial institutions.

At Cop26, Rishi Sunak announced that the UK will become the world’s first “net zero-aligned finance centre” – seemingly a response to accusations that banks are not doing enough. His move was instantly criticised by climate campaigners as little more than a “marketing slogan”. If the Glasgow summit is to live up to its status as the “finance COP“, we need to radically transform the global financial system so that it serves public purpose over private profit. The GFANZ is a start, but it doesn’t go far enough.

International agencies and national governments need to impose stringent conditions on how financial corporations operate, switching investments out of fossil fuels and into zero-carbon activities. Through carbon tariffs, renewable energy subsidies and state investments, fossil capitalism can – and should – be rendered unprofitable.

A massive expansion of state-owned green investment banks will be critical for transforming finance. These provide patient loans and grants, used to fund research and development and startups in zero-carbon technologies. A promising example is the Scottish National Investment Bank, which invests millions across Scotland to deliver climate goals. Across the world, public banks are already the pioneers of green lending: they invest nearly as much as all private banks combined in the green economy, despite accounting for only 20% of total global banking assets.

Importantly, public banks and public wealth funds retain a substantial stake in the capital created by the green transition – through, for instance, equity shares and revenue participation agreements. If we want to ensure a socially just – and thus effective – transition, green investment banks must be governed democratically, and their financial assets should be shared collectively among workers and citizens. This could take the form of a citizens’ dividend that would provide everyone with a guaranteed minimum income, for example. Such institutions can transform shareholder capitalism, which feeds profits back to company shareholders, into stakeholder capitalism, in which citizens and workers have a democratic ownership stake.

“Business as usual” only leads us down the road of no return. We urgently need to change direction towards a radical industrial strategy that puts climate action at the forefront of financial investments. This will mean restructuring capitalism around a renewed sense of public purpose, channelled through ambitious missions to renew the capacities of the state and meet the challenges of the climate crisis. In practice, this means setting measurable goals such as creating good green jobs for unemployed coal workers, as exemplified by Spain’s national Just Transition Strategy, bringing stakeholders together to achieve them, and redirecting resources.

New institutions will be needed to push forward this economic transformation. Europe already has its Organisation for Nuclear Research, known as Cern, which pools technology and resources for particle physics. We need an equivalent body for climate technology that would pool investments in climate action across countries and sectors (the G7 Panel on Economic Resilience, which I was part of, has already recommended precisely this).

We also need a new social contract between the state, capital and labour. This will mean transforming the government’s reliance on parasitic public-private partnerships that socialise the risks and privatise the rewards of important public projects (such as the UK’s test-and-trace programme). To prevent this from hampering climate action, governments should enforce new conditions that ensure private contractors promote decarbonisation. They could follow Sweden’s example, which recently insisted that contractors only use green steel, made without coal.

Governments could also take inspiration from Germany’s state-owned development bank, KfW, which offers loans to the steel industry that include conditions to reduce carbon and emissions. Or the French and Dutch Covid bailouts for national airline carriers Air France and KLM, which enforced conditions including cutting domestic flights that compete with rail travel and reducing absolute carbon emissions. Conditions like these need to be extended across the board to make it impossible for carbon-emitting companies to operate.

At Cop26 it should be clear to delegates what lies at the root of climate catastrophe. The type of capitalism we have created is driving environmental breakdown and needs to be fundamentally redesigned. There is no time for tinkering; we need radical transformation now.

• Mariana Mazzucato is professor in the economics of innovation and public value at University College London, and the founding director of the UCL Institute for Innovation and Public Purpose (IIPP). Her latest book is Mission Economy: A Moonshot Guide to Changing Capitalism; Matthew Thompson is Research Fellow in Rethinking Public Value at IIPP.