This seems to only be supported using delegated permission according to docs at
Update group - Microsoft Graph beta | Microsoft Learn
Note: Use of this API to apply sensitivity labels to Microsoft 365 groups is only supported for **delegated permission** scenarios.
Support to apply sensitivity label to a Microsoft 365 group using app only token · Issue #515 · microsoftgraph/msgraph-beta-sdk-dotnet (github.com)
it woudl make things a bit easier !
The page has been updated to specify that app permissions work, yet this issue remains.
Being able to add/update Sensitivity Labels to M365 groups via app permissions would be extremely helpful!
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