Error message: Unable to set startup disk

I have an iMac 5K 2017, currently running macOS Big Sur 11.7.10.

I purchased a SanDisk PRO-G40 SSD external disk with 2-TB and installed macOS Monterery 12.7.1 on it. Subsequent to the installation, Disk Utility is showing me two volumes on the PRO-G40: (a) an APFS System Volume "PRO-G40" and (b) an APFS Data Volume "PRO-G40 - Data".

As I wanted to be able to boot from this disk, I went into System Preferences/Startup Disk and selected "PRO-G40" which showed macOS 12.7.1.

So far so good, right?

However, when I hit "Restart..." I get the following error message:

Why is this happening?