"Environmentally-friendly" sounds completely normal to me. So does "Environment-friendly". But I'm pretty sure I favour the former (despite the fact that I normally prefer the shorter of any two equivalent terms).
According to Google, I'm in good company. At least, the 'allies' massively outnumber those who say "Environment-friendly".
Why is this? Environment seems like a straightforward noun. All the other -friendly constructions I can think of just bolt on to the uninflected noun…
User-friendly software, Gay-friendly bar, Dolphin-friendly tuna, etc.
I hesitate to ask "What's so special about the environment?", but there it is being asked.
Later… Note that my focus is on why the inflected form apparently 'just happens' to be used with environment, but not with other nouns.
Best Answer
I don’t think there’s anything grammatically wrong with environment friendly. It sounds a little funny only because we hear environmentally friendly so much more often, and I think the reason for that is historical.
The environmentally phrases all seem to have taken off at around the same time, during the 1970s, according to Google n-grams. The most common of the phrases at that time was environmentally sound.
Note that environment sound is not an option. It’s clearly ungrammatical, I guess because sound doesn’t take any kind of complement: policies that are sound to the environment is wrong.
The less common phrases apparently followed the lead of environmentally sound, and that’s where we are today.