What “this” means?

Question

Environmental, physical, and psychological factors limit our potential and narrow the range of things we can do with our lives. “Trying harder” cannot substitute for talent, equipment, and method, but this should not lead to despair. Rather, we should attempt to become the best we can be within our limitations. We try to find our niche. By the time we reach employment age, there is a finite range of jobs we can perform effectively.

1. Trying harder
2. The fact that trying harder cannot substiute for talent, equipment, and method

Which seems more probable? Really frustrating matter..

Answer 1

Trying harder cannot substitute for talent, equipment, and method, but this should not lead to despair.

Here this is referring to the fact that "trying harder cannot substitute talent, equipment, and method" the sentence could be rewritten as:

Trying harder cannot substitute for talent, equipment, and method, but the fact that it (trying harder) can't should not lead to despair.

If you infer "this" to be "Trying harder" the sentence becomes

Trying harder cannot substitute for talent, equipment, and method, but trying harder should not lead to despair.

I believe the sentence becomes less coherent when you infer this as trying harder