There is a mechanism to do it without modifying any files that are in the distribution. You can create a separate file %CATALINA_HOME%\bin\setenv.bat or $CATALINA_HOME/bin/setenv.sh and put your environment variables there. Further, the memory settings apply to the JVM, not Tomcat, so I’d set the JAVA_OPTS variable instead:
set JAVA_OPTS=-Xmx512m