diff --git a/cmpserver/plugin/plugin.go b/cmpserver/plugin/plugin.go
index 717fea0250cd..899312f8a81f 100644
--- a/cmpserver/plugin/plugin.go
+++ b/cmpserver/plugin/plugin.go
@@ -233,12 +233,12 @@ func (s *Service) MatchRepository(stream apiclient.ConfigManagementPluginService
 		}
 	}()
 
-	_, err = cmp.ReceiveRepoStream(bufferedCtx, stream, workDir)
+	metadata, err := cmp.ReceiveRepoStream(bufferedCtx, stream, workDir)
 	if err != nil {
 		return fmt.Errorf("match repository error receiving stream: %s", err)
 	}
 
-	isSupported, err := s.matchRepository(bufferedCtx, workDir)
+	isSupported, err := s.matchRepository(bufferedCtx, workDir, metadata.GetEnv())
 	if err != nil {
 		return fmt.Errorf("match repository error: %s", err)
 	}
@@ -251,7 +251,7 @@ func (s *Service) MatchRepository(stream apiclient.ConfigManagementPluginService
 	return nil
 }
 
-func (s *Service) matchRepository(ctx context.Context, workdir string) (bool, error) {
+func (s *Service) matchRepository(ctx context.Context, workdir string, envEntries []*apiclient.EnvEntry) (bool, error) {
 	config := s.initConstants.PluginConfig
 	if config.Spec.Discover.FileName != "" {
 		log.Debugf("config.Spec.Discover.FileName is provided")
@@ -284,7 +284,9 @@ func (s *Service) matchRepository(ctx context.Context, workdir string) (bool, er
 	}
 
 	log.Debugf("Going to try runCommand.")
-	find, err := runCommand(ctx, config.Spec.Discover.Find.Command, workdir, os.Environ())
+	env := append(os.Environ(), environ(envEntries)...)
+
+	find, err := runCommand(ctx, config.Spec.Discover.Find.Command, workdir, env)
 	if err != nil {
 		return false, fmt.Errorf("error running find command: %s", err)
 	}
diff --git a/cmpserver/plugin/plugin_test.go b/cmpserver/plugin/plugin_test.go
index cb00510385fb..ab117c1d5083 100644
--- a/cmpserver/plugin/plugin_test.go
+++ b/cmpserver/plugin/plugin_test.go
@@ -10,6 +10,7 @@ import (
 	"github.com/stretchr/testify/require"
 	metav1 "k8s.io/apimachinery/pkg/apis/meta/v1"
 
+	"github.com/argoproj/argo-cd/v2/cmpserver/apiclient"
 	"github.com/argoproj/argo-cd/v2/test"
 )
 
@@ -62,6 +63,7 @@ func TestMatchRepository(t *testing.T) {
 	type fixture struct {
 		service *Service
 		path    string
+		env     []*apiclient.EnvEntry
 	}
 	setup := func(t *testing.T, opts ...pluginOpt) *fixture {
 		t.Helper()
@@ -71,6 +73,7 @@ func TestMatchRepository(t *testing.T) {
 		return &fixture{
 			service: s,
 			path:    path,
+			env:     []*apiclient.EnvEntry{{Name: "ENV_VAR", Value: "1"}},
 		}
 	}
 	t.Run("will match plugin by filename", func(t *testing.T) {
@@ -81,7 +84,7 @@ func TestMatchRepository(t *testing.T) {
 		f := setup(t, withDiscover(d))
 
 		// when
-		match, err := f.service.matchRepository(context.Background(), f.path)
+		match, err := f.service.matchRepository(context.Background(), f.path, f.env)
 
 		// then
 		assert.NoError(t, err)
@@ -95,7 +98,7 @@ func TestMatchRepository(t *testing.T) {
 		f := setup(t, withDiscover(d))
 
 		// when
-		match, err := f.service.matchRepository(context.Background(), f.path)
+		match, err := f.service.matchRepository(context.Background(), f.path, f.env)
 
 		// then
 		assert.NoError(t, err)
@@ -111,7 +114,7 @@ func TestMatchRepository(t *testing.T) {
 		f := setup(t, withDiscover(d))
 
 		// when
-		match, err := f.service.matchRepository(context.Background(), f.path)
+		match, err := f.service.matchRepository(context.Background(), f.path, f.env)
 
 		// then
 		assert.NoError(t, err)
@@ -127,7 +130,7 @@ func TestMatchRepository(t *testing.T) {
 		f := setup(t, withDiscover(d))
 
 		// when
-		match, err := f.service.matchRepository(context.Background(), f.path)
+		match, err := f.service.matchRepository(context.Background(), f.path, f.env)
 
 		// then
 		assert.NoError(t, err)
@@ -145,7 +148,7 @@ func TestMatchRepository(t *testing.T) {
 		f := setup(t, withDiscover(d))
 
 		// when
-		match, err := f.service.matchRepository(context.Background(), f.path)
+		match, err := f.service.matchRepository(context.Background(), f.path, f.env)
 
 		// then
 		assert.NoError(t, err)
@@ -163,7 +166,43 @@ func TestMatchRepository(t *testing.T) {
 		f := setup(t, withDiscover(d))
 
 		// when
-		match, err := f.service.matchRepository(context.Background(), f.path)
+		match, err := f.service.matchRepository(context.Background(), f.path, f.env)
+
+		// then
+		assert.NoError(t, err)
+		assert.False(t, match)
+	})
+	t.Run("will match plugin because env var defined", func(t *testing.T) {
+		// given
+		d := Discover{
+			Find: Find{
+				Command: Command{
+					Command: []string{"sh", "-c", "echo -n $ENV_VAR"},
+				},
+			},
+		}
+		f := setup(t, withDiscover(d))
+
+		// when
+		match, err := f.service.matchRepository(context.Background(), f.path, f.env)
+
+		// then
+		assert.NoError(t, err)
+		assert.True(t, match)
+	})
+	t.Run("will not match plugin because no env var defined", func(t *testing.T) {
+		// given
+		d := Discover{
+			Find: Find{
+				Command: Command{
+					Command: []string{"sh", "-c", "echo -n $ENV_NO_VAR"},
+				},
+			},
+		}
+		f := setup(t, withDiscover(d))
+
+		// when
+		match, err := f.service.matchRepository(context.Background(), f.path, f.env)
 
 		// then
 		assert.NoError(t, err)
@@ -181,7 +220,7 @@ func TestMatchRepository(t *testing.T) {
 		f := setup(t, withDiscover(d))
 
 		// when
-		match, err := f.service.matchRepository(context.Background(), f.path)
+		match, err := f.service.matchRepository(context.Background(), f.path, f.env)
 
 		// then
 		assert.Error(t, err)
diff --git a/reposerver/repository/repository.go b/reposerver/repository/repository.go
index 46521fd11181..a8b1d76db802 100644
--- a/reposerver/repository/repository.go
+++ b/reposerver/repository/repository.go
@@ -1271,7 +1271,7 @@ func runConfigManagementPlugin(appPath, repoRoot string, envVars *v1alpha1.Env,
 		}
 	}
 
-	env, err := getPluginEnvs(envVars, q, creds)
+	env, err := getPluginEnvs(envVars, q, creds, false)
 	if err != nil {
 		return nil, err
 	}
@@ -1289,8 +1289,14 @@ func runConfigManagementPlugin(appPath, repoRoot string, envVars *v1alpha1.Env,
 	return kube.SplitYAML([]byte(out))
 }
 
-func getPluginEnvs(envVars *v1alpha1.Env, q *apiclient.ManifestRequest, creds git.Creds) ([]string, error) {
-	env := append(os.Environ(), envVars.Environ()...)
+func getPluginEnvs(envVars *v1alpha1.Env, q *apiclient.ManifestRequest, creds git.Creds, remote bool) ([]string, error) {
+	env := envVars.Environ()
+	// Local plugins need also to have access to the local environment variables.
+	// Remote side car plugins will use the environment in the side car
+	// container.
+	if !remote {
+		env = append(os.Environ(), env...)
+	}
 	if creds != nil {
 		closer, environ, err := creds.Environ()
 		if err != nil {
@@ -1313,27 +1319,29 @@ func getPluginEnvs(envVars *v1alpha1.Env, q *apiclient.ManifestRequest, creds gi
 
 	if q.ApplicationSource.Plugin != nil {
 		pluginEnv := q.ApplicationSource.Plugin.Env
-		for i, j := range pluginEnv {
-			pluginEnv[i].Value = parsedEnv.Envsubst(j.Value)
+		for _, entry := range pluginEnv {
+			newValue := parsedEnv.Envsubst(entry.Value)
+			env = append(env, fmt.Sprintf("ARGOCD_ENV_%s=%s", entry.Name, newValue))
 		}
-		env = append(env, pluginEnv.Environ()...)
 	}
 	return env, nil
 }
 
 func runConfigManagementPluginSidecars(ctx context.Context, appPath, repoPath string, envVars *v1alpha1.Env, q *apiclient.ManifestRequest, creds git.Creds, tarDoneCh chan<- bool) ([]*unstructured.Unstructured, error) {
-	// detect config management plugin server (sidecar)
-	conn, cmpClient, err := discovery.DetectConfigManagementPlugin(ctx, appPath)
+	// compute variables.
+	env, err := getPluginEnvs(envVars, q, creds, true)
 	if err != nil {
 		return nil, err
 	}
-	defer io.Close(conn)
 
-	// generate manifests using commands provided in plugin config file in detected cmp-server sidecar
-	env, err := getPluginEnvs(envVars, q, creds)
+	// detect config management plugin server (sidecar)
+	conn, cmpClient, err := discovery.DetectConfigManagementPlugin(ctx, appPath, env)
 	if err != nil {
 		return nil, err
 	}
+	defer io.Close(conn)
+
+	// generate manifests using commands provided in plugin config file in detected cmp-server sidecar
 	cmpManifests, err := generateManifestsCMP(ctx, appPath, repoPath, env, cmpClient, tarDoneCh)
 	if err != nil {
 		return nil, fmt.Errorf("error generating manifests in cmp: %s", err)
diff --git a/reposerver/repository/repository_test.go b/reposerver/repository/repository_test.go
index aeba9b8dd1df..f326b031620b 100644
--- a/reposerver/repository/repository_test.go
+++ b/reposerver/repository/repository_test.go
@@ -1103,7 +1103,7 @@ func TestRunCustomTool(t *testing.T) {
 			Name: "test",
 			Generate: argoappv1.Command{
 				Command: []string{"sh", "-c"},
-				Args:    []string{`echo "{\"kind\": \"FakeObject\", \"metadata\": { \"name\": \"$ARGOCD_APP_NAME\", \"namespace\": \"$ARGOCD_APP_NAMESPACE\", \"annotations\": {\"GIT_ASKPASS\": \"$GIT_ASKPASS\", \"GIT_USERNAME\": \"$GIT_USERNAME\", \"GIT_PASSWORD\": \"$GIT_PASSWORD\"}, \"labels\": {\"revision\": \"$TEST_REVISION\"}}}"`},
+				Args:    []string{`echo "{\"kind\": \"FakeObject\", \"metadata\": { \"name\": \"$ARGOCD_APP_NAME\", \"namespace\": \"$ARGOCD_APP_NAMESPACE\", \"annotations\": {\"GIT_ASKPASS\": \"$GIT_ASKPASS\", \"GIT_USERNAME\": \"$GIT_USERNAME\", \"GIT_PASSWORD\": \"$GIT_PASSWORD\"}, \"labels\": {\"revision\": \"$ARGOCD_ENV_TEST_REVISION\"}}}"`},
 			},
 		}},
 		Repo: &argoappv1.Repository{
diff --git a/test/e2e/custom_tool_test.go b/test/e2e/custom_tool_test.go
index 26adcbc4eac1..2afc469fc6ab 100644
--- a/test/e2e/custom_tool_test.go
+++ b/test/e2e/custom_tool_test.go
@@ -102,7 +102,7 @@ func TestCustomToolWithEnv(t *testing.T) {
 				Name: Name(),
 				Generate: Command{
 					Command: []string{"sh", "-c"},
-					Args:    []string{`echo "{\"kind\": \"ConfigMap\", \"apiVersion\": \"v1\", \"metadata\": { \"name\": \"$ARGOCD_APP_NAME\", \"namespace\": \"$ARGOCD_APP_NAMESPACE\", \"annotations\": {\"Foo\": \"$FOO\", \"KubeVersion\": \"$KUBE_VERSION\", \"KubeApiVersion\": \"$KUBE_API_VERSIONS\",\"Bar\": \"baz\"}}}"`},
+					Args:    []string{`echo "{\"kind\": \"ConfigMap\", \"apiVersion\": \"v1\", \"metadata\": { \"name\": \"$ARGOCD_APP_NAME\", \"namespace\": \"$ARGOCD_APP_NAMESPACE\", \"annotations\": {\"Foo\": \"$ARGOCD_ENV_FOO\", \"KubeVersion\": \"$KUBE_VERSION\", \"KubeApiVersion\": \"$KUBE_API_VERSIONS\",\"Bar\": \"baz\"}}}"`},
 				},
 			},
 		).
@@ -162,7 +162,7 @@ func TestCustomToolSyncAndDiffLocal(t *testing.T) {
 				Name: Name(),
 				Generate: Command{
 					Command: []string{"sh", "-c"},
-					Args:    []string{`echo "{\"kind\": \"ConfigMap\", \"apiVersion\": \"v1\", \"metadata\": { \"name\": \"$ARGOCD_APP_NAME\", \"namespace\": \"$ARGOCD_APP_NAMESPACE\", \"annotations\": {\"Foo\": \"$FOO\", \"KubeVersion\": \"$KUBE_VERSION\", \"KubeApiVersion\": \"$KUBE_API_VERSIONS\",\"Bar\": \"baz\"}}}"`},
+					Args:    []string{`echo "{\"kind\": \"ConfigMap\", \"apiVersion\": \"v1\", \"metadata\": { \"name\": \"$ARGOCD_APP_NAME\", \"namespace\": \"$ARGOCD_APP_NAMESPACE\", \"annotations\": {\"Foo\": \"$ARGOCD_ENV_FOO\", \"KubeVersion\": \"$KUBE_VERSION\", \"KubeApiVersion\": \"$KUBE_API_VERSIONS\",\"Bar\": \"baz\"}}}"`},
 				},
 			},
 		).
diff --git a/util/app/discovery/discovery.go b/util/app/discovery/discovery.go
index 7f83d7eae1e4..bda4f942ae68 100644
--- a/util/app/discovery/discovery.go
+++ b/util/app/discovery/discovery.go
@@ -33,7 +33,7 @@ func Discover(ctx context.Context, repoPath string, enableGenerateManifests map[
 	apps := make(map[string]string)
 
 	// Check if it is CMP
-	conn, _, err := DetectConfigManagementPlugin(ctx, repoPath)
+	conn, _, err := DetectConfigManagementPlugin(ctx, repoPath, []string{})
 	if err == nil {
 		// Found CMP
 		io.Close(conn)
@@ -82,7 +82,7 @@ func AppType(ctx context.Context, path string, enableGenerateManifests map[strin
 // 3. check isSupported(path)?
 // 4.a if no then close connection
 // 4.b if yes then return conn for detected plugin
-func DetectConfigManagementPlugin(ctx context.Context, repoPath string) (io.Closer, pluginclient.ConfigManagementPluginServiceClient, error) {
+func DetectConfigManagementPlugin(ctx context.Context, repoPath string, env []string) (io.Closer, pluginclient.ConfigManagementPluginServiceClient, error) {
 	var conn io.Closer
 	var cmpClient pluginclient.ConfigManagementPluginServiceClient
 
@@ -106,7 +106,7 @@ func DetectConfigManagementPlugin(ctx context.Context, repoPath string) (io.Clos
 				continue
 			}
 
-			isSupported, err := matchRepositoryCMP(ctx, repoPath, cmpClient)
+			isSupported, err := matchRepositoryCMP(ctx, repoPath, cmpClient, env)
 			if err != nil {
 				log.Errorf("repository %s is not the match because %v", repoPath, err)
 				continue
@@ -131,13 +131,13 @@ func DetectConfigManagementPlugin(ctx context.Context, repoPath string) (io.Clos
 // matchRepositoryCMP will send the repoPath to the cmp-server. The cmp-server will
 // inspect the files and return true if the repo is supported for manifest generation.
 // Will return false otherwise.
-func matchRepositoryCMP(ctx context.Context, repoPath string, client pluginclient.ConfigManagementPluginServiceClient) (bool, error) {
+func matchRepositoryCMP(ctx context.Context, repoPath string, client pluginclient.ConfigManagementPluginServiceClient, env []string) (bool, error) {
 	matchRepoStream, err := client.MatchRepository(ctx, grpc_retry.Disable())
 	if err != nil {
 		return false, fmt.Errorf("error getting stream client: %s", err)
 	}
 
-	err = cmp.SendRepoStream(ctx, repoPath, repoPath, matchRepoStream, []string{})
+	err = cmp.SendRepoStream(ctx, repoPath, repoPath, matchRepoStream, env)
 	if err != nil {
 		return false, fmt.Errorf("error sending stream: %s", err)
 	}