Why do ICNS files need to be perfect squares?
No, that is not possible. macOS only supports square icons for this purpose.

The size must be either 16 × 16, 32 × 32, 48 × 48, 128 × 128, 256 × 256, 512 × 512, or 1024 × 1024.

Note that even though the physical dimensions of the icons must be square, it is possible to create the illusion of having a non-square icon by making parts of the icon transparent.