A company has many microservices that are comprised of AWS Lambda functions.

Sensitive environment variables in Lambda should be protected using encryption helpers integrated with AWS KMS. Lambda environment variables are encrypted at rest, and when using a customer managed KMS key, teams can control the key policy, access, and rotation for their own microservices—matching the policy requirement that each team has “full control” over key rotation. AWS managed keys do not provide the same level of customer control over lifecycle and rotation decisions.

Therefore, the correct approach is to create customer managed KMS keys (one per team/service boundary or per microservice, depending on governance) and configure each Lambda function to use the relevant CMK for encrypting its environment variables. The Lambda execution role must have permission to use the key for decryption at runtime, typically requiring kms:Decrypt (and sometimes kms:DescribeKey depending on tooling). This is captured by Option B.

Option A and D use AWS managed keys, which do not satisfy the requirement for each team to control rotation. Rotation control (and policy ownership) is a key differentiator of customer managed keys.

Option C is not correct because the Lambda execution role does not need kms:CreateGrant and kms:Encrypt for decrypting environment variables at runtime. Over-permissioning increases risk. The Lambda service handles encryption of environment variables; the function runtime principally needs the ability to decrypt.