。
This packing material serves as the thermal insulation.
Literal
This packing-material [subj-が] thermal-insulation-function [obj-を] bearing-[progressive-ている].
梱包材 'packing material' (梱包 'packing' + 材 'material') and 断熱機能 'thermal-insulation function' (断熱 'heat-blocking' + 機能 'function') are dense technical compounds. 担っている (from 担う 'to bear/carry') means 'is fulfilling the role of' — a formal verb for bearing responsibility or function.