This snippet will substitute the environment variables into the VS Code settings.json file.

substituteEnv.ps1

Get-Content -Path "$env:APPDATA\Code*\User\settings.json" | ForEach-Object -Begin { $pattern = '\$\{env:([^\}]+)\}'; } { $match = $_ | Select-String -Pattern $pattern; if ($null -ne $match) { $match = $match.Matches.Groups[1]; $match = (Get-Item -Path Env:\$match).Value -replace '\\', '\\'; $_ -replace $pattern, $match } else { $_ } } | Set-Content -Path ($temp = New-TemporaryFile) && Get-Content $temp | Set-Content -Path "$env:APPDATA\Code*\User\settings.json"