The scorched earth portion of it makes sense militarily - take over a country, decimate the population, and move out. Without population, there is going to be a dearth of W3C companies for a long time in that country. As well as very few reinforcements for the armies of others. Repeated often enough, it's going to strangle the world economy - except of course for those that are already prepared for it (ie. the ones decimating all the native sims) - most of the economic advice I've seen seems to rely on computer controlled companies making all the low profit products, like in the agricultural section - if you remove that prop there's going to be a lot of devastation. And those that do have control of corporations supplying needed commodities would make a fortune.
On the moral angle - I fail to see the difference, except in magnitude, between marching people in front of a firing squad, and carpet bombing a population center devoid of armed forces, or destroying corporations that have no direct link to the same. The game already encourages, if not mandates, the latter two. It's not a big stretch to allow the former.
It could also open up more scope for the Security Council, and allow others to participate in the same. - passing resolutions condemning crimes against simanity - and the use of boycotts, and even Security Council troops drawn from members of that august body (not just the ruling council.)
Indeed, the stigma of being seen as a closet Nazi, Serb, Communist, Hutu, or American could be repellent to some players.