No error message is displayed. The Distribution Lists are absent from the list of possible targets.
The Distribution List in question is not targeted by Cloudlink in case of On-Premises Exchange environment or an LDAP query is being used to target it. Alternatively, archive-enabled mailboxes were not provisioned remotely using either of the available synchronization tools ( Cloudlink & Office 365 ). For example, the mailboxes may have been provisioned manually in the Manage Console.
Create a new task and target the Distribution Group directly using the Task Manager Wizard in Cloudlink, and perform the Synchronize with Active Directory operation .

Once this task runs successfully, the desired Distribution List will be available to select as a Target for Retention Policy assignment.

A Clean\Full Sync also called as the Run Now sync will synchronize all the Distribution Lists from the O365 tenant into the Veritas Alta Archiving instance.