Biggest issue with this is colorspace/gamut - more important than dynamic range in most modern HDR displays is that they also tend to support gamuts wider than sRGB. Hence rec. 2020.
There are two problems with HLG’s “SDR fallback” mechanisms:
- A rec. 2020 image is going to be washed out, or have gamut clipping, if fed to a Rec. 709 display. (Sadly, the same “SDR fallback” mechanisms also will usually lead to Rec. 2020 content being mis-displayed as if it were Rec. 709 content, e.g. washed out/desaturated)
- The HLG transfer function lacks the “foot” that most S-curves have. Of course, if you add a “foot” for blacks in your content, HLG now appears on an SDR display like it has an S-curve, since the HLG transfer function handles the “shoulder” in SDR fallback mode