The game should work without problems on your system at maximum graphics quality settings.

Choose the “Ultra” option for shadows separately or use the “Ultra” preset for graphics quality.

Engine.ini and Scalability.ini.

Both files are located in the WindowsNoEditor folder.

Path for Little Nightmares
Steam\steamapps\common\Little Nightmares\Atlas\Saved\Config\WindowsNoEditor

Path for Little Nightmares 2
C:\Users\(your username)\AppData\Local\Helios\Saved\Config\WindowsNoEditor *

* How to show the hidden folder AppData.
https://support.microsoft.com/en-us/windows/show-hidden-files-0320fe58-0117-fd59-6851-9b7f9840fdb2

I found a new modification method that has better performance and better quality than the previous method!

1. Open the Engine.ini configuration file with a text editor (Notepad, WordPad).

2. Start a new paragraph. Write or paste the following text.

[SystemSettings]
r.Shadow.TexelsPerPixel=9.675590551181102
r.Shadow.TexelsPerPixelPointlight=9.675590551181102
r.Shadow.PointLightDepthBias=0.2
r.Shadow.TexelsPerPixelSpotlight=9.675590551181102

3. Save the changes and close the file.

4. Open the Scalability.ini configuration file with a text editor.

5. Write or paste the following text.

[ShadowQuality@3]
r.Shadow.MaxResolution=4096
r.Shadow.MaxCSMResolution=4096
r.Shadow.RadiusThreshold=0.02

Sixth. Save the changes and close the file.

Ultra settings.

The envelope on the floor, the tin cans and the doorknob don't cast a shadow.
Six has a low-resolution shadow from her hood.

Modified settings.

Crisp, detailed shadows.
All small objects now cast a shadow.