Abstract: Enhancing ESG performance has become a new way to improve firm value, and positive internal and external interaction is an important way for sustainable enterprise development. This paper explores the impact of tax incentives on firm ESG performance and the interactive effects with external market regulation and internal financial redundancy using data of listed companies in China from 2009 to 2022. The empirical results show that tax incentives significantly promote ESG performance in general, and the findings still hold after multiple robustness tests. Considering the internal and external factors of enterprises, the enhancement effect of tax incentives on ESG performance is stronger when capital market regulation is higher or the financial redundancy of enterprises is greater, where the interaction effect of market supervision and tax incentives is particularly significant. Further research shows that tax incentive policies have a more pronounced impact on the green transformation of manufacturing enterprises. The study of economic consequences shows that tax incentives can further promote the role of ESG performance on firm value enhancement.