As mentioned in the OP, the reason for the request on this topic comes primarily from legal concerns/obligations.
Those that provide a service where the data is stored/used are responsible for keeping it secure and are legally liable for what happens to it. In the light of e.g. GDPR, in order to provide someone with moderator status (which currently still gives visibility into the users IP address), it can require a signed contract with each moderator, specifying what may or may not be done with it, perhaps training/documentation about GDPR, etc. All that can make sense at some scales/contexts, but there are also many scenarios where it becomes an unnecessary burden which I think could be simplified with a moderators view ip addresses setting like the already existing one for hiding email addresses from mods.
Lacking that, when giving someone moderator privileges, the service may be liable for not properly protecting the data. Note that IANAL, but this is my understanding of it.