Is there a downside to killing civilians outside of retaliation missions?
Solution 1:
No, there is no downside to killing civilians. I've killed hundreds of civs in hijack, defense, and guerilla op missions with no impact on either the mission rating, the well being of my troops, or the well being of my own mind.
That's right, you can still get Flawless ratings from missions even if you kill civilians.
The way I see it, if they don't get out of your way, they become cannon fodder.