Process arguments are visible to all users, but the environment is only visible to the same user (at least on Linux, and I think on every modern unix variant). So passing a password through an environment variable is safe. If someone can read your environment variables, they can execute processes as you, so it's game over already.
The contents of the environment is at some risk of leaking indirectly, for example if you run
ps to investigate something and accidentally copy-paste the result including confidential environment variables in a public place. Another risk is that you pass the environment variable to a program that doesn't need it (including children of the process that needs the password) and that program exposes its environment variables because it didn't expect them to be confidential. How bad these risks of secondary leakage are depends on what the process with the password does (how long does it run? does it run subprocesses?).
It's easier to ensure that the password won't leak accidentally by passing it through a channel that is not designed to be eavesdropped, such as a pipe. This is pretty easy to do on the sending side. For example, if you have the password in a shell variable, you can just do
echo "$password" | theprogram
theprogram expects the password on its standard input. Note that this is safe because
echo is a builtin; it would not be safe with an external command since the argument would be exposed in
ps output. Another way to achieve the same effect is with a here document:
Some programs that require a password can be told to read it from a specific file descriptor. You can use a file descriptor other than standard input if you need standard input for something else. For example, with
get-encrypted-data | gpg --passphrase-fd 3 --decrypt … 3<<EOP >decrypted-data
If the program can't be told to read from a file descriptor but can be told to read from a file, you can tell it to read from a file descriptor by using a file name like `/dev/fd/3.
theprogram --password-from-file=/dev/fd/3 3<<EOF
In ksh, bash or zsh, you can do this more concisely through process substitution.
theprogram --password-from-file=<(echo "$password")