@22689742 Thanks for your patience on this. I have checked with Functions engineering team and they have confirmed that application settings are not policy addressable.
Configuring the azure policy to check or update the existing functions are running with latest version is not possible for windows webapps since apps running on windows app service plan Nodejs version is dependent on application settings.
I would suggest you raise feedback request here Azure Functions · Community and our engineering team actively monitor this feedback as well.
Feel free to reach back to me if you have any further questions on this.