If the project’s working color space is changed from sRGB to another color space — for example, AP1 — the textures used by artists in the project will not automatically be converted to the working color space (AP1) for rendering. However, the post-process pipeline will assume that the lighting result is in AP1 and apply ACES tonemapping accordingly, which causes an oversaturation problem.
Normally, artists import sRGB textures by checking the sRGB flag in the texture conversion settings, but the source color settings are not modified. The only way to force a texture to convert to the working color space is to explicitly set the encoding override and color space, in addition to enabling Generate Mipmaps, as noted in Eric’s comment (SHA-1: 973792234be62b6e6dd8b25c6c41f22dc9c6e71a).
Intuitively, one would expect non-linear textures to be automatically transformed to the working color space, but that is not the case here. When the AP1 color space is explicitly set, the texture remains compressed in raw sRGB, with the GPU hardware applying gamma decoding to sRGB space. This behaviour appears to be a bug, as it is not consistent with the assumption that the lighting result is in AP1 color space when the input texture source is still in the linear sRGB gamut.
My expectation is that when the sRGB flag is checked in the texture settings, the texture should automatically be converted to match the working color space. (If the working color space is AP1, then the sRGB to AP1 conversion should be executed.)
SHA-1: 973792234be62b6e6dd8b25c6c41f22dc9c6e71a
* ColorManagement: Utilize OpenColorIO for advanced color space transformations on textures during mip generation.