While I cant say for sure if its really a purely ethical choice, or maybe even something along the lines of the designers themselves not wanting to design/model sexy gear onto children (while it is in a sense their job to deliver whatever outfits Yoshi-P sees fit for the game, I could understand someone going "Yeah, I'm not comfortable with designing a playboy-bunny outfit for a child").
The reason I mention this is because the solution you're proposing is something they already did or are even still doing: Clothes are getting altered for lalafell.
I have my ARR artbook lying next to me and would like to quote from page 88, a comment made on the Taffeta Shawl by Namae: "I try not to make Lalafells too sexy when designing their gear, and the look here is that of a child's swimsuit."
While we went over the whole "lalafells are adults"-thing before, I'd like to point out that they still have certain features that makes one think more of a child, which are taken into consideration by the design-team, it seems. There are some more comments in the artbook all basically saying "the lalafell gear here was insipired by what a child might wear" and as you can already see in game, most "bikini-type"-pieces get a bit more fabric for lalafell.
Maybe I'm naive, but to me this already shows that at least one person in the design-team wasnt overly comfortable with designing sexy gear for characters that can look like they're a bit young.
Since lalafells are adults in the end and dont actually represent (human) children, its still not much of an issue - opposed to having actual children.
...and even if they alter the gear: mods are still a thing, that they're probably aware of.
But even besides that, there are things in the game itself that would seem just a little bit weird were the character a child (or at least clearly looked like one, aka used one of the child-models): Haurchefaunt, any other character that might flirt with you, the whole Eternal Bonding ceremony (even if they dont call it a wedding, it damn well hits all the marks of one - and you dont need a sucuubus-glamour to end up with a childs-bride...)... its simply a whole can of worms that I understand them not going anywhere near - wether its a buisness-choice, an ethical one by the team or maybe even just one on a personal level of "yeah, I'd rather not design this" is obviously difficult to say.
But going through that artbook at least gives me the sense of them being aware what they're putting out there and whats appropriate - and what isnt.