Background: Despite growing environmental threats and the urgent need for sustainable financing of conservation projects, effective financial mechanisms—such as environmental derivative instruments—have not yet been systematically integrated into ecological risk management and the support of sustainable investments. The purpose of this study is to examine the role and function of environmental derivatives in managing ecological risks and providing sustainable financing for conservation projects.

Method: This applied study employed a descriptive–analytical approach. Data were collected through a questionnaire distributed among 100 experts and specialists at the Environmental Protection Department in Tehran. Participants were selected using Cochran’s formula and simple random sampling. The data were analyzed using structural equation modeling (SEM) with SmartPLS software.

Findings: The results indicate that environmental derivative instruments have a positive and significant impact on ecological risk management. Specifically, the use of these instruments reduces environmental volatility, increases predictability, and enhances decision-making in conservation policy. The findings further show that environmental derivatives positively and significantly influence sustainable financing by increasing transparency in green asset valuation, reducing investment risk, and facilitating liquidity flows—ultimately strengthening the financial sustainability of environmental projects.

Value: Accordingly, the development of environmental derivatives markets can serve as a key strategy for linking the financial system with environmental conservation goals and advancing sustainable development.