I'am not found specs with examples abount cascading vars. But try this case https://github.com/MadLittleMods/postcss-css-variables#caveats native in Browser on CodePen. (without plugin)
<div class="component">
Black
<h1 class="title">
Blue
<p class="decoration">
Green
<h1 class="title">Blue with this plugin, but green per spec</h1>
</p>
</h1>
</div>
.component {
--text-color: blue;
}
.component .title {
color: var(--text-color);
}
.component .decoration {
--text-color: green;
color: var(--text-color);
}

It turns out that the plugin works correctly? Or browsers do not work correctly?