(Bloomberg) -- Europe’s stricter environmental, social and governance rules might be forcing companies in more controversial sectors to look across the Atlantic for funding.

That’s according to Trisha Taneja, Deutsche Bank AG’s newly-appointed global head of ESG for origination and advisory. The European Union’s sustainable investing rules are resulting in a broader application of ESG criteria, with asset managers looking to align their portfolios to its so-called taxonomy to ensure investments “do no significant harm.”

“Defense and tobacco are two sectors that are increasingly facing exclusions in Europe and are finding it easier to raise capital in the U.S.,” said Taneja in an interview. “Investors there are more focused on ESG risk integration rather than the ‘do no significant harm’ approach.”

Just last week, a Blackstone Inc.-backed German company that makes a product for cigarette filters priced a junk bond in the U.S. with a 10.5% coupon, the highest seen in the market since May 2021. Cerdia Finanz GmbH’s debt was offered at such a high yield in large part due to its tobacco association, according to people familiar with the matter.

Companies around the world are grappling with a smorgasboard of ESG regulations as global policy makers look to direct finance toward funding lower carbon growth and crack down on greenwashing. While the Securities and Exchange Commission has sent tremors through the U.S. fund industry by making clear it will no longer tolerate exaggerated ESG claims, Europe’s efforts are more advanced.

There are already signs of regional divergence in investor attitudes. ESG concerns regarding oil and gas bonds wiped out more than half of their euro-denominated returns in 2021, according to a HSBC Holdings Plc study. 

“An ESG premium in EUR oil and gas bonds is no longer a theoretical conjecture like at the start of 2021 -- it is now reality,” said strategists including Song Jin Lee, making similar findings in sterling markets. However, they “see little evidence of ESG investing impacting oil and gas returns in the U.S. or Asia.”

Taneja, who has a particular focus on corporate finance advisory, declined to name specific companies shifting their focus to U.S. markets, citing client confidentiality. The divergence raises questions on how both investors and corporations are navigating contrasting norms and rules when it comes to sustainable finance. 

“I wouldn’t call it regulatory arbitrage because they’re not doing it voluntarily,” she said. “They’re losing access to investors in Europe and their cost of capital is getting higher.”

©2022 Bloomberg L.P.