Step 1: Create the Azure Functions app with a Consumption plan type.
Use the Consumption plan for serverless.
Step 2: Create a system-assigned managed identity for the application.
Create a system-assigned managed identity for your application.
Key Vault references currently only support system-assigned managed identities. User-assigned identities cannot be used.
Step 3: Create an access policy in Key Vault for the application identity.
Create an access policy in Key Vault for the application identity you created earlier. Enable the "Get" secret permission on this policy. Do not configure the
"authorized application" or applicationId settings, as this is not compatible with a managed identity.
Reference:
https://docs.microsoft.com/en-us/azure/app-service/app-service-key-vault-references