diff --git a/test/e2e/e2e_suite_test.go b/test/e2e/e2e_suite_test.go
index 0c77876e4223..0b0159eb9334 100644
--- a/test/e2e/e2e_suite_test.go
+++ b/test/e2e/e2e_suite_test.go
@@ -159,18 +159,23 @@ func loadE2EConfig(configPath string) *clusterctl.E2EConfig {
 	config := clusterctl.LoadE2EConfig(context.TODO(), clusterctl.LoadE2EConfigInput{ConfigPath: configPath})
 	Expect(config).ToNot(BeNil(), "Failed to load E2E config from %s", configPath)
 
-	// Read CNI file and set CNI_RESOURCES environmental variable
-	Expect(config.Variables).To(HaveKey(CNIPath), "Missing %s variable in the config", CNIPath)
-	clusterctl.SetCNIEnvVar(config.GetVariable(CNIPath), CNIResources)
-
 	return config
 }
 
 func createClusterctlLocalRepository(config *clusterctl.E2EConfig, repositoryFolder string) string {
-	clusterctlConfig := clusterctl.CreateRepository(context.TODO(), clusterctl.CreateRepositoryInput{
+	createRepositoryInput := clusterctl.CreateRepositoryInput{
 		E2EConfig:        config,
 		RepositoryFolder: repositoryFolder,
-	})
+	}
+
+	// Ensuring a CNI file is defined in the config and register a FileTransformation to inject the referenced file in place of the CNI_RESOURCES envSubst variable.
+	Expect(config.Variables).To(HaveKey(CNIPath), "Missing %s variable in the config", CNIPath)
+	cniPath := config.GetVariable(CNIPath)
+	Expect(cniPath).To(BeAnExistingFile(), "The %s variable should resolve to an existing file", CNIPath)
+
+	createRepositoryInput.RegisterClusterResourceSetConfigMapTransformation(cniPath, CNIResources)
+
+	clusterctlConfig := clusterctl.CreateRepository(context.TODO(), createRepositoryInput)
 	Expect(clusterctlConfig).To(BeAnExistingFile(), "The clusterctl config file does not exists in the local repository %s", repositoryFolder)
 	return clusterctlConfig
 }
diff --git a/test/framework/clusterctl/e2e_config.go b/test/framework/clusterctl/e2e_config.go
index f8273ac326c0..bfbe516fd532 100644
--- a/test/framework/clusterctl/e2e_config.go
+++ b/test/framework/clusterctl/e2e_config.go
@@ -18,7 +18,6 @@ package clusterctl
 
 import (
 	"context"
-	"encoding/json"
 	"fmt"
 	"io/ioutil"
 	"os"
@@ -64,19 +63,6 @@ func LoadE2EConfig(ctx context.Context, input LoadE2EConfigInput) *E2EConfig {
 	return config
 }
 
-// SetCNIEnvVar read CNI from cniManifestPath and sets an environmental variable that keeps CNI resources.
-// A ClusterResourceSet can be used to apply CNI using this environmental variable.
-func SetCNIEnvVar(cniManifestPath string, cniEnvVar string) {
-	cniData, err := ioutil.ReadFile(cniManifestPath)
-	Expect(err).ToNot(HaveOccurred(), "Failed to read the e2e test CNI file")
-	Expect(cniData).ToNot(BeEmpty(), "CNI file should not be empty")
-	data := map[string]interface{}{}
-	data["resources"] = string(cniData)
-	marshalledData, err := json.Marshal(data)
-	Expect(err).NotTo(HaveOccurred())
-	Expect(os.Setenv(cniEnvVar, string(marshalledData))).NotTo(HaveOccurred())
-}
-
 // E2EConfig defines the configuration of an e2e test environment.
 type E2EConfig struct {
 	// Name is the name of the Kind management cluster.
diff --git a/test/framework/clusterctl/repository.go b/test/framework/clusterctl/repository.go
index f30e809953cb..74c4e748ce24 100644
--- a/test/framework/clusterctl/repository.go
+++ b/test/framework/clusterctl/repository.go
@@ -17,11 +17,15 @@ limitations under the License.
 package clusterctl
 
 import (
+	"bytes"
 	"context"
+	"fmt"
 	"io/ioutil"
 	"os"
 	"path/filepath"
+	"strings"
 
+	. "github.com/onsi/ginkgo"
 	. "github.com/onsi/gomega"
 
 	clusterctlv1 "sigs.k8s.io/cluster-api/cmd/clusterctl/api/v1alpha3"
@@ -29,11 +33,34 @@ import (
 )
 
 // Provides helpers for managing a clusterctl local repository to be used for running e2e tests in isolation.
+type RepositoryFileTransformation func([]byte) ([]byte, error)
 
 // CreateRepositoryInput is the input for CreateRepository.
 type CreateRepositoryInput struct {
-	RepositoryFolder string
-	E2EConfig        *E2EConfig
+	RepositoryFolder    string
+	E2EConfig           *E2EConfig
+	FileTransformations []RepositoryFileTransformation
+}
+
+// RegisterClusterResourceSetConfigMapTransformation registers a FileTransformations that injects a CNI file into
+// a ConfigMap that defines a ClusterResourceSet resource.
+//
+// NOTE: this transformation is specifically designed for replacing "data: ${envSubstVar}".
+func (i *CreateRepositoryInput) RegisterClusterResourceSetConfigMapTransformation(cniManifestPath, envSubstVar string) {
+	By(fmt.Sprintf("Reading the CNI manifest %s", cniManifestPath))
+	cniData, err := ioutil.ReadFile(cniManifestPath)
+	Expect(err).ToNot(HaveOccurred(), "Failed to read the e2e test CNI file")
+	Expect(cniData).ToNot(BeEmpty(), "CNI file should not be empty")
+
+	i.FileTransformations = append(i.FileTransformations, func(template []byte) ([]byte, error) {
+		old := fmt.Sprintf("data: ${%s}", envSubstVar)
+		new := "data:\n"
+		new += "  resources: |\n"
+		for _, l := range strings.Split(string(cniData), "\n") {
+			new += strings.Repeat(" ", 4) + l + "\n"
+		}
+		return bytes.Replace(template, []byte(old), []byte(new), -1), nil
+	})
 }
 
 // CreateRepository creates a clusterctl local repository based on the e2e test config, and the returns the path
@@ -72,6 +99,12 @@ func CreateRepository(ctx context.Context, input CreateRepositoryInput) string {
 			data, err := ioutil.ReadFile(file.SourcePath)
 			Expect(err).ToNot(HaveOccurred(), "Failed to read file %q / %q", provider.Name, file.SourcePath)
 
+			// Applies FileTransformations if defined
+			for _, t := range input.FileTransformations {
+				data, err = t(data)
+				Expect(err).ToNot(HaveOccurred(), "Failed to apply transformation func template %q", file)
+			}
+
 			destinationFile := filepath.Join(filepath.Dir(providerURL), file.TargetName)
 			Expect(ioutil.WriteFile(destinationFile, data, 0600)).To(Succeed(), "Failed to write clusterctl local repository file %q / %q", provider.Name, file.TargetName)
 		}