Punishing the wicked does not make you just, baby Jesus is offended with you.
But for realsies though, in this universe being condemned to non-existence is pictured as one of the worst punishments possible. It's sort of like a combination of sending someone to hell and also killing them doubly up, because they don't get to come back like literally everyone else.
So the game is setting the precedent that you can do a lot of things to be a 'Villain' as a mortal, but to destroy a spirit is inherently
"Villainous". I don't want to get into a deep ethics\moral philosophy discussion here, because I do that every tuesday and wednesday, hey-o, but I think it's fair to say that regardless of your opinion on the matter; the game is setting the bar saying 'This is the line you can not cross if you wish to be a good person'.
Which is fair, considering MASSIVE END-OF-THE-GAME SPOILER:
The Magisters, while trying their best to recreate the 'Evil' version of the Fourth Reich; according to the game both Lucian and Dallis not only condone it; they encourage it. For what the game presents as morally "good" reasons. Presuming you agree with them and go along with their plan the ending cinematic also affirms that; yes, this was really an okay thing to do. And I think you have to be a pretty fucking hardcore Utilitarian to say that genocide justifies prematurely ending a war by condemning the enemy to hell (the Void).
So basically the Magisters are "Villainous" but also "Good". You can even argue that the God King has a pretty good justification for his actions, if you just remove the taint of the Void from him he would probably be one of the most sympathetic causes in the game.
So DESPITE you having a pretty good argument for why Kemm's a big ol dirtbag and doesn't deserve any better because he is a villain, and you can argue that you are morally justified in ending his existence permanently, the GAME says that if you do that you are a Villain. Your willingness to destroy a spirit can be best represented, in-universe, as a willingness to dispose of ethics to achieve a good outcome. So in a way you can say 'Villain' just means 'Consequentialist with anger issues'.
The best comparison I can make at the top of my head is suicide in some religions, particularly in some Christian and Sikh sects; where the mere act of suicide is a sin that is worthy of sending you to hell. It doesn't matter if you have all the good reasons in the world to do it: you could be doing it to avoid your own suffering, to donate your organs to the more needy, to save your family; whatever. But if it is a sin it sends you to hell regardless, even IF it was a morally justified thing to do.
Destroying the Sallow Man's spirit might be morally justified, as he seemingly is never going to redeem himself and leaving that malevolent spirit intact will eventually harm more people. Regardless, the sin of destroying a spirit makes you the villain even THOUGH it lead to more good outcomes.
TL;DR- The game has set a series of moral principles, and you don't have to agree with them because, well, that'd be a bit simplistic. You can choose to follow these principles or not, and claim yourself moral or immoral accordingly, but the game will label you on how you follow ITS principles.
I'm with you, Kemm is a dirtbag; and arguably the Sallow Man is a force that should be permanently removed. Doesn't make it any less evil. At least not according to the game's internal moral evaluation.
Now a gif of a cat and a lizard because this textwall is horrific.