Are there extra flanking rules in Long War 2?
Solution 1:
I don't believe this mod changes anything.
The yellow shield refers to standing next to a half/full cover in any adjacent direction. Not necessarily in the direction of your character. In this picture it might be possible that the enemy has a no-cover lamp post between themselves and your character, and behind them, in the background of the picture, a full cover.
The enemy icon above "fire weapon" does however take the cover between the enemy and your character in account, turning yellow when you have the chance of dealing a no cover flanking shot.